AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1998
SECURITIES ACT REGISTRATION NO. 333-______
INVESTMENT COMPANY ACT FILE NO. 811-4611
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-2
(Check appropriate box or boxes)
[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-effective Amendment No.
[ ] Post-effective Amendment No.
and/or
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 30
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Exact Name of Registrant Specified in Charter
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Gateway Center 3, 100 Mulberry Street, Newark, New Jersey 07102
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(800) 451-6788
Registrant's Telephone Number, Including Area Code
RICHARD P. STRICKLER 45 Broadway, New York, New York 10006
Name and Address (Number, Street, City, State, Zip Code of Agent for Service)
Copies to:
Margaret A. Bancroft, Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York 10112
John A. MacKinnon, Brown & Wood LLP, One World Trade Center, New York, New York 10048
Allan S. Mostoff, Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, DC 20006
As soon as practicable after the effective date of this Registration Statement
Approximate Date of Proposed Public Offering
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum Proposed Maximum
Title of Securities Amount Offering Price Aggregate Amount of
Being Registered Being Registered Per Unit Offering Price Registration Fee(1)
============================= ==================== ==================== ====================== =====================
Common Stock 81,143,470 shares $6.375 $517,289,621.25 $152,600.44
($.01 par value)
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(1) Estimated pursuant to Rule 457(c) on the basis of market value per share on
August 14, 1998.
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The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
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THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS OF REGISTRATION STATEMENT (FORM N-2) AND PROSPECTUS
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Parts A and B
Item No. Caption Location in Prospectus
1. Outside Front Cover Outside Front Cover Page
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fund Expenses
4. Financial Highlights Financial Highlights; Senior Securities
5. Plan of Distribution Prospectus Summary; The Offer; Distribution Arrangements; Fund
Expenses
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds
8. General Description of the Registrant Cover Page; Prospectus Summary; The Fund; Risk Factors and Special
Considerations; Investment Objectives and Policies; Investment
Restrictions; Description of Common Stock; Capital Stock
9. Management Management of the Fund; Management Agreement and Advisory Agreement;
Administration Agreement; Custodian, Dividend Paying Agents,
Transfer Agents, Registrar, and Auction Agent
10. Capital Stock, Long-Term Debt, and Other Prospectus Summary; Description of Common Stock; Capital Stock;
Securities Dividends and Distributions; Dividend Reinvestment and Cash Purchase
Plan; Taxation
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of Not Applicable
Additional Information
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Cover Page; The Fund
17. Investment Objective and Policies Investment Objective and Policies; Investment Restrictions;
Portfolio Transactions and Brokerage
18. Management Management of the Fund
19. Control Persons and Principal Holders of Management of the Fund -- Share Ownership
Securities
20. Investment Advisory and Other Services Fund Expenses; Management Agreement and Advisory Agreement;
Administration Agreement; Custodian; Dividend Paying Agents,
Transfer Agents and Registrars; Experts
21. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
22. Tax Status Taxation
23. Financial Statements Financial Statements
Part C
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Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
SUBJECT TO COMPLETION -- DATED AUGUST 19, 1998
PROSPECTUS
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___________ Shares of Common Stock
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
Issuable Upon Exercise of Non-Transferable
Rights to Subscribe for Such Shares of Common Stock
American Stock Exchange Symbol: FAX
Pacific Stock Exchange Symbol: FAX
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The First Australia Prime Income Fund, Inc. (the "Fund") will issue to its
stockholders of record as of the close of business on __________, 1998 (the
"Record Date"), non-transferable rights (the "Rights") entitling the holders
thereof to subscribe for up to an aggregate of __________ shares (the "Shares")
of the Fund's common stock, par value $.01 (the "Common Stock"), at the rate of
ONE SHARE OF COMMON STOCK FOR EACH WHOLE RIGHT HELD (the "Offer"). Stockholders
of record will receive one-third of a non-transferable Right for each share of
Common Stock held and stockholders who fully exercise their Rights will have,
subject to certain limitations and subject to allotment, an OVER-SUBSCRIPTION
privilege (the "Over-Subscription Privilege"). Fractional shares will not be
issued upon the exercise of Rights; accordingly, only whole Rights may be
exercised. The Rights are non-transferable and will not be admitted for trading
on the American Stock Exchange (the "AMEX") or any other exchange. The Fund's
Common Stock is listed on the AMEX and the Pacific Stock Exchange (the "PSE")
under the symbol "FAX." See "The Offer." THE SUBSCRIPTION PRICE PER SHARE WILL
BE 95% OF THE LOWER OF (a) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A
SHARE OF THE FUND'S COMMON STOCK ON THE AMEX ON __________, 1998 (THE "PRICING
DATE") AND THE FOUR PRECEDING BUSINESS DAYS OR (b) THE NET ASSET VALUE ("NAV")
PER SHARE AS OF THE PRICING DATE (THE "SUBSCRIPTION PRICE").
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________, 1998,
UNLESS EXTENDED (THE "EXPIRATION DATE"). FOR ADDITIONAL INFORMATION REGARDING
THE OFFER, PLEASE CALL SHAREHOLDER COMMUNICATIONS CORPORATION (THE "INFORMATION
AGENT") AT (800) 733-8481 Ext. 422.
The Fund is a non-diversified, closed-end management investment company. The
Fund's principal investment objective is current income through investment
primarily in Australian dollar-denominated debt securities. In May 1998, the
Fund's Common and Preferred stockholders approved a series of proposals allowing
the Fund to invest up to 35% of its assets in Asian debt securities. The Fund
may also achieve incidental capital appreciation. See "Investment Objective and
Policies; Investment Restrictions." Investment in the Fund involves certain
risks and special considerations, including risks associated with currency
fluctuations and the Fund's leveraged capital structure. See "RISK FACTORS AND
SPECIAL CONSIDERATIONS." The Fund's Investment Manager is EquitiLink
International Management Limited (the "Investment Manager"), an affiliate of
EquitiLink Australia Limited, the Fund's Investment Adviser (the "Investment
Adviser"). Prudential Investments Fund Management LLC acts as the Fund's
Administrator. The address of the Fund is Gateway Center 3, 100 Mulberry Street,
Newark, New Jersey 07102, and its telephone number is (800) 451-6788.
The Fund announced the Offer prior to the commencement of trading on the AMEX on
________, 1998. The NAV per share of Common Stock at the close of business on
________, 1998 and ________, 1998 was $________ and $________, respectively, and
the last reported sales prices per share of the Fund's Common Stock on the AMEX
on those dates were $_________ and $_________, respectively.
As a result of the terms of the Offer, stockholders who do not fully exercise
their Rights will, upon the completion of the Offer, own a smaller proportional
interest in the Fund than they owned prior to the Offer. In addition, because
the Subscription Price will be less than the current NAV per share, the Offer
will result in an immediate dilution of the NAV per share for all existing
stockholders. The dilution, which might be substantial, is not currently
determinable because it is not known how many Shares will be subscribed for,
what the NAV or market price of the Common Stock will be on the Pricing Date or
what the Subscription Price will be. Stockholders will experience a decrease in
the NAV per share held by them, irrespective of whether they exercise all or any
portion of the their Rights. See "The Offer" and "Risk Factors and Special
Considerations." INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND TO RETAIN IT
FOR FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Estimated Estimated Estimated Proceeds
Subscription Price(1) Sales Load(2) to Fund(3)
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Per Share............... $ $ $
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Total Maximum........... $ $ $
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Footnotes set forth on next page
DEALER MANAGERS
PRUDENTIAL SECURITIES INCORPORATED
A.G. EDWARDS & SONS, INC.
SALOMON SMITH BARNEY
_________, 1998
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(continued from previous page)
(1) Estimated on the basis of the average of the last reported sales prices
of a share of the Fund's Common Stock on the AMEX on ________, 1998 and
the four preceding business days. Pursuant to the Over-Subscription
Privilege, the Fund may increase the number of Shares subject to
subscription by up to 25% of the Shares offered hereby. If the Fund
increases the number of Shares subject to subscription by 25%, the
total maximum Estimated Subscription Price will be approximately
$_________, the total maximum Estimated Sales Load will be
approximately $_________ and the total maximum Estimated Proceeds to
Fund will be approximately $_________.
(2) In connection with the Offer, the Fund has agreed to pay Prudential
Securities Incorporated, Salomon Smith Barney and A.G. Edward & Sons,
Inc. (the "Dealer Managers") a fee for their financial advisory,
marketing and soliciting services equal to ____% of the aggregate
Subscription Price for the Shares issued pursuant to the Offer and to
reimburse Prudential Securities Incorporated for out-of-pocket
expenses up to $___________. The Dealer Managers will reallow to
certain broker-dealers a concession of ____% of the Subscription Price
for Shares issued pursuant to the Offer. See "Distribution
Arrangements." These fees and expense reimbursement will be borne by
the Fund and indirectly by all of the Fund's stockholders, including
those who do not exercise their Rights. The Fund and the Investment
Manager have agreed to indemnify the Dealer Managers against certain
liabilities including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), and the Investment Company Act of
1940, as amended (the "Investment Company Act").
(3) Before deduction of expenses incurred by the Fund, estimated to be
$________, including $________ to be paid to Prudential Securities
Incorporated for reimbursement of their expenses.
Unless otherwise specified, all references in this Prospectus to "U.S.
dollars," "dollars," "US$" or "$" are to the United States dollar, all
references to "A$" are to the Australian dollar and all references to "NZ$" are
to the New Zealand dollar. On _________, 1998, the noon buying rates in New York
City for cable transfers payable in A$ and NZ$, as certified for customs
purposes by the Federal Reserve Bank of New York, were A$________ per U.S.
dollar and NZ$________ per U.S. dollar. See "Risks and Special Considerations --
Currency and Interest Rate Fluctuations."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere or incorporated by reference in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that stockholders fully exercise their Rights and that the allowable
increase of 25% of the Shares offered hereby pursuant to the Over-Subscription
Privilege will not occur. Also, unless otherwise indicated, references in the
Prospectus to "stockholders" refer only to holders of the Fund's Common Stock.
THE OFFER AT A GLANCE
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The Offer The Fund is issuing to stockholders of record
on , 1998 ("Record Date Stockholders")
one-third of a non-transferable Right for each
share of Common Stock held. A stockholder's
right to acquire, during the Subscription Period
at the Subscription Price, one Share for each
whole Right held is hereinafter referred to as
the "Primary Subscripton." The Shares issued in
the Offer will not be entitled to the
distribution to be declared to stockholders of
record on , 1998 which is payable in
__________ 1998.
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Subscription Price The Subscription Price will be 95% of the lower
of (a) the average of the last reported sales
price of a share of the Fund's Common Stock on
the AMEX on the Pricing Date and the four
preceding business days or (b) the NAV per share
as of the Pricing Date.
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Over-Subscription Stockholders who fully exercise all Rights issued
Privilege to them (other than those Rights which cannot be
exercised because they represent the right to
acquire less than one Share) are entitled to
subscribe for additional Shares. The Fund may, at
its discretion, issue up to an additional 25% of
the shares available in the Offer to honor
over-subscriptions.
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Purpose of the Offer In May 1998, the Fund's Common and Preferred
stockholders approved a series of proposals
allowing the Fund, among other things, to:
. invest up to 35% of its assets in Asian debt
securities;
. invest in Asian debt securities for which
there is no established relevant market;
. invest up to 15% of its total assets in
Asian debt securities rated, or considered
by the Investment Manager to be, below
investment grade at the time of investment,
and to reduce the percentage of its
investments in debt securities which are, or
are considered by the Investment Manager to
be, rated AA or A quality; and
. utilize derivatives in furtherance of its
investment objective and policies.
The net proceeds of this Offer will be used to
implement this new investment flexibility and are
intended to enable the Fund to maintain stable
monthly distributions, as well as to return the
Fund to a position where the leverage of the
Preferred Stock is a benefit to holders of
Common Stock, by taking advantage of
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the relatively high level of interest rates
available in Asian markets compared with interest
rates prevailing in Australia and New Zealand.
This will, however, expose the Fund to greater
interest rate risk, foreign exchange risk, credit
risk, political and economic risk and liquidity
risk than the Fund has been exposed to in the
past, particularly in light of the ongoing
instability of the Asian currency and bond
markets. Also, as a consequence of the Fund's
investment in Asian debt securities, the overall
credit quality of the securities in the Fund's
portfolio will be reduced.
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Use of Proceeds The Investment Manager and Investment Adviser
anticipate that investment of the net proceeds in
Asian debt securities, in accordance with the
Fund's investment objective and policies, will
take up to three months from their receipt by the
Fund, depending on market conditions and the
availability of appropriate securities. See "Use
of Proceeds."
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How to Obtain . Contact your broker or nominee, or
Subscription
Information . Contact the Information Agent toll-free at
(800) 733-8481, Ext. 422 or call collect
(212) 805-7000.
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How to Subscribe . Deliver a completed Exercise Form and
payment to the Subscription Agent by the
Expiration Date, or
. If your shares are held in a brokerage
or bank account, have your broker or bank
deliver a Notice of Guaranteed Delivery to
the Subscription Agent by the Expiration
Date.
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Subscription Agent State Street Bank and Trust Company
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IMPORTANT DATES TO REMEMBER
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Record Date................................................. ________, 1998
Subscription Period......................................... ________, 1998-_____ 1998
Deadline for delivery of Exercise Form together
with payment of Estimated Subscription Price of for
delivery or Notice of Guaranteed Delivery ............. ________, 1998
Expiration Date and Pricing Date............................ ________, 1998
Deadline for payment pursuant to Notice of Guaranteed
Delivery................................................ ________, 1998
Confirmation Date to Registered Stockholders................ ________, 1998
For Registered Stockholder Purchases -
Deadline for payment of unpaid balance
if Final Subscription Price is higher than Estimated
Subscription Price ..................................... ________, 1998
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THE FUND AT A GLANCE
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The Fund The Fund is a non-diversified, closed-end
management investment company organized as a
Maryland corporation. As of the Record Date, the
Fund's NAV per share was $______.
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AMEX and PSE As of the Record Date, the Fund had __________
Listed shares of Common Stock, par value $.01,
outstanding, which are traded on the AMEX and PSE
under the symbol "FAX." As of the Record Date,
the last reported sales price of a share of the
Fund was $_____. The Rights are non-transferable
and therefore will not be admitted for trading on
the AMEX and the PSE.
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Preferred Stock As of the Record Date, the Fund had 24,000 shares
of Auction Market Preferred Stock (the "Preferred
Stock"), par value $.01, outstanding. The
Preferred Stock has an aggregate liquidation
value of $600 million.
Holders of Common Stock have generally benefited
from the Fund's issuance of the Preferred Stock
which commenced in 1989. Since the fiscal quarter
beginning August 1, 1997, however, the shrinking
yield differential between Australia and U.S.
rates and a depreciating Australian dollar have
resulted in the Preferred Stock having a negative
impact on returns to holders of Common Stock. The
proposed investment of a significant percentage
of the Fund's total assets in higher yielding
Asian debt securities, as recommended by the
Fund's Investment Manager and Investment Adviser,
and approved by Common and Preferred stockholders
in May 1998, is expected to increase the Fund's
earnings to a position where the leverage will
have a positive effect on stockholder returns.
See "The Offer--Purpose of the Offer."
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Investment Objective To obtain current income through investment
primarily in Australian debt securities. The Fund
may also achieve incidental capital appreciation.
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Portfolio Structure It is expected that normally at least 65% of the
Fund's total assets will be invested in
Australian dollar denominated debt securities of
Australian banks, federal and state governmental
entities and companies, and in Australian dollar
denominated global or Eurobonds, whether or not
the issuer is domiciled in Australia, which
expose the Fund to the Australian interest rate
structure and which are traded by reference to
similar debt securities of Australian domiciled
issuers. In May 1998, the Fund's Common and
Preferred stockholders approved a proposal which
allows the Fund to invest the balance of its
total assets in Asian and New Zealand debt
securities.
"Asian debt securities" includes (1) debt
securities issued by entities located in the
following countries: China, Hong Kong, India,
Indonesia, Japan, Malaysia, the Philippines,
Singapore, South Korea, Taiwan and Thailand (each
an "Asian Country" or together "Asian
Countries"), as well as (2) debt securities of
other issuers which are denominated in, or linked
to, the currency of an Asian Country. In
addition, "Asian debt securities" may include
debt securities issued by entities located in
other countries on the Asian continent, or which
are denominated in, or linked to, the currency of
any other country on the Asian continent provided
the country is approved for investment by the
Board of Directors upon the recommendation of the
Investment Manager and Investment Adviser.
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Investment Guidelines General. It is the Fund's policy to limit its
investments as to at least 50% of its total
assets, to issuers or debt securities which are,
at the time of investment, rated AA or better by
Standard & Poor's Corporation ("S&P"), or "aa" or
better by Moody's Investors Service,
Inc.("Moody's"), or which, in the opinion of the
Investment Manager, are of equivalent quality. In
addition, at least 65% of the Fund's investments
must be rated, at the time of investment, A- or
better by S&P or A3 or better by Moody's or be,
in the Investment Manager's judgment, of
equivalent quality.
Asian Debt. In order to accommodate investment in
Asian markets, Asian debt securities may be
purchased which, at the time of investment are
rated by S&P or Moody's, or are judged by the
Investment Manager, to be the equivalent of at
least B- by S&P or B3 by Moody's; provided,
however, that in no event may more than 15% of
its total assets be invested in Asian debt
securities which, at the time of investment, are
rated below investment grade of BBB, but not less
than B-, by S&P, or Baa, but not less than B3, by
Moody's, or which, in the opinion of the
Investment Manager, are of equivalent quality,
and provided further, that with the approval of
the Fund's Board of Directors, the ratings of
other recognized rating services may be used. As
a consequence of the Fund's investment in Asian
debt securities, the overall credit quality of
the securities in the Fund's portfolio will be
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reduced.
The maximum country exposure to any one Asian
Country is limited to 15% of the Fund's total
assets and the maximum currency exposure to any
one Asian County currency is limited to 10% of
the Fund's total assets.
The Fund will generally invest in debt securities
for which there is an active secondary market,
except that the Fund may invest up to 35% of its
total assets in Asian debt securities for which
there is no established relevant market.
The Fund may, with respect to its Asian
investments, use derivatives to manage currency
and interest rate risk and as a substitute for
physical securities. The Fund may also use
derivatives with respect to its Australian
and New Zealand investments to manage interest
rate risk through investing in exchange traded
interest rate derivatives.
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Distributions The Fund pays distributions monthly out of
current income supplemented by realized
capital gains, if required. The current monthly
cash distribution is U.S. 6 cents per share.
Income dividends may be distributed in cash or
reinvested in additional full and fractional
shares through the Fund's Dividend Reinvestment
and Cash Purchase Plan. The Shares issued in the
Offer will not be entitled to the distribution to
be declared to stockholders of record on _______
__, 1998 which is payable in _________ 1998.
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Investment Manager and EquitiLink International Management Limited (the
Investment Adviser "Investment Manager") acts as the Fund's
investment manager and EquitiLink Australia
Limited (the "Investment Adviser") acts as the
Fund's investment adviser. The Investment Manager
and the Investment Adviser also serve in these
capacities for the First Asia Income Fund, a
closed-end investment trust, the units of which
are listed on the Toronto Stock Exchange (under
the symbol "FAI.UN"), organized to invest
primarily in debt securities of issuers in
Australia, New Zealand and other Asian countries;
The First Australia Fund, Inc., a non-diversified
closed-end management investment company, the
shares of which are listed on the AMEX (under the
symbol "IAF"), organized to invest primarily in
Australian listed equity securities; The First
Australia Prime Income Investment Company
Limited, a closed-end management investment
company, the shares of which are listed on the
Toronto Stock Exchange (under the symbol "FAP"),
also organized to invest primarily in Australian
debt securities; and The First Commonwealth Fund,
Inc., a non-diversified closed-end management
investment company, the shares of which are
listed on the New York Stock Exchange (under the
symbol "FCO"), organized to invest in high-grade,
fixed income securities denominated in the
currencies of Australia, Canada, New Zealand and
the United Kingdom. In addition, the Investment
Adviser currently manages eleven Australian
wholesale public
- 8 -
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unit trusts and two other closed-end management
investment companies, the shares of which are
listed on the Australian Stock Exchange Limited,
as well as an open-end fund marketed in Taiwan
and institutional and private advisory accounts.
Experience in Asia. The Investment Manager and
Investment Adviser also manage The First Asia
Income Fund, which commenced operations in May
1997. The Investment Adviser's professional staff
collectively has many years of investment
experience managing investments in Asian markets
including prior employment with other investment
management firms based in Hong Kong and Malaysia.
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Compensation of the The Fund pays the Investment Manager a fee at the
Investment Manager annual rate of 0.65% of the Fund's average weekly
and Investment net assets applicable to Common and Preferred
Adviser Stock up to $200 million, 0.60% of the assets
between $200 million and $500 million, 0.55% of
the assets between $500 million and $900 million,
0.50% of the assets between $900 million and
$1,750 million and 0.45% of the assets in excess
of $1,750 million, computed based upon net assets
applicable to Common and Preferred Stock at the
end of each week and payable at the end of each
calendar month. Under the Advisory Agreement, the
Investment Manager pays the Investment Adviser an
advisory fee at the annual rate of 0.25% of the
Fund's average weekly net assets applicable to
Common and Preferred Stock up to $1,200 million
and 0.20% of the assets in excess of $1,200
million at the end of each week and payable at
the end of each calendar month. THE FUND'S
INVESTMENT MANAGER AND INVESTMENT ADVISER WILL
BENEFIT FROM THE OFFER BECAUSE THEIR FEES ARE
BASED ON THE AVERAGE NET ASSETS APPLICABLE TO
COMMON AND PREFERRED STOCK OF THE FUND.
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Administrator The Fund's Administrator is Prudential
Investments Fund Management LLC. The Fund pays
the Administrator a fee computed at the annual
rate of 0.15% of the Fund's average weekly net
assets applicable to the Common Stock and
Preferred Stock up to $900 million, 0.10% of such
assets between $900 million and $1,750 million
and 0.07% of such assets in excess of $1,750
million, based upon the net asset value
applicable to Common and Preferred Stock at the
end of each week and payable at the end of each
calendar month. THE FUND'S ADMINISTRATOR WILL
BENEFIT FROM THE OFFER BECAUSE ITS FEE IS BASED
ON THE AVERAGE NET ASSETS APPLICABLE TO COMMON
AND PREFERRED STOCK OF THE FUND.
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<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS AT A GLANCE
The following summarizes certain matters that should be considered,
among others, in connection with the Offer. For a more complete discussion of
the risk factors and special considerations involved in investing in the Fund's
shares, see "Risk Factors and Special Considerations."
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Dilution - Net Asset
Dilution - Net Asset As a result of the terms of
the Offer, Value and Non- stockholders who do not
fully exercise their Participation in the Rights
will, upon the completion of the Offer, Offer own
a smaller proportional interest in the Fund than
they owned prior to the Offer. In addition, an
immediate dilution of the NAV per Offer share
will be experienced by all stockholders as a
result of the Offer, whether or not they exercise
all or any of their Rights, because the
Subscription Price will be less than the then
current NAV per share, and the number of shares
outstanding after the Offer will increase in
greater percentage than the increase in the size
of the Fund's assets. This dilution could be
minimal or it could be substantial. See "Risk
Factors - Dilution - Net Asset Value and
Non-Participation in the Offer." The Offer may
also have a dilutive impact on investment income
per share available for distribution.
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Current Distribution
Rate In February 1989, the Fund began to pay regular
monthly distributions from net investment income
which, commencing in September 1993, have been
supplemented by realized capital gains. The
amount of monthly distributions has been reduced
from time to time when the previous distribution
level could no longer be sustained. For the
current fiscal year, the distributions to date
have exceeded net investment income. To the
extent total distributions for the year exceed
the Fund's net investment income, the difference
will be deemed for income tax purposes to have
been distributed from realized capital gains or
will be treated as return of capital. Although
the Fund anticipates that investment of the
proceeds in higher yielding Asian debt securities
will enable the Fund to realize earnings in
excess of future distributions, stockholders are
cautioned that there can be no guarantee of
future performance.
The Fund's investment in Asian debt securities
involves risks and uncertainties so that actual
results may differ materially from those
anticipated as a result of various factors. If
the anticipated results are not achieved, the
Fund may not be able to maintain the current
level of monthly distributions. The Fund
undertakes no obligation to update or revise the
disclosure in this Prospectus with regard to the
effect of investment in Asia on the Fund's
monthly distributions to reflect current events
or circumstances after the date of this
Prospectus or to reflect the occurrence of
unanticipated events.
The Board of Directors reviews the level of
monthly distributions on a continuing basis at
its quarterly Board meetings, with the next
review scheduled to take place at its meeting to
be held in September 1998. The
- --------------------------------------------------------------------------------
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
Shares issued in the Offer will not be entitled
to the distribution to be declared to
stockholders of record on 1998 which
is payable in , 1998.
- --------------------------------------------------------------------------------
Currency Exchange Currency Exchange Currency exchange rates can
Rate Fluctuations fluctuate significantly over short periods and
can be subject Rate Fluctuations to unpredictable
changes based on a variety of factors including
political developments and the imposition of
currency controls by foreign governments. See
"Risk Factors and Special Considerations --
Currency Exchange Rate Fluctuations." A decline
in the value of the currency in which a portfolio
security is denominated against the U.S. dollar
will generally result in a decline in the U.S.
dollar value of the Fund's assets. If the decline
occurs after the Fund has accrued income but
before it has been received, the Fund could be
required to liquidate portfolio securities to
make distributions.
Currency exchange rate fluctuations can decrease
or eliminate income available for distribution or
conversely increase income available for
distribution. For example, if currency exchange
losses exceed other net investment income for a
taxable year, the Fund would not be able to make
ordinary income distributions. In that event, if
distributions had been made before the losses had
been realized, they would be recharacterized
either as a return of capital, thus reducing each
stockholder's cost basis, or as a dividend from
capital gains rather than ordinary income.
The Fund will not seek to hedge against adverse
currency fluctuations in the Australian dollar.
With respect to Asian currencies, currency
fluctuations against the U.S. dollar in many
Asian Countries have been profound and negative
in recent months, and there can be no assurance
that these exchange rates will stabilize against
the U.S. dollar. Although the Fund may hedge
against currency fluctuations with respect to
Asian currencies, there can be no assurance that
it can employ this strategy successfully.
- --------------------------------------------------------------------------------
Interest Rate Fluctuations Fluctuations in interest rates in the relevant
bond markets can affect the Fund's NAV and
distribution rate.
The Fund's NAV is adversely affected during
periods of rising interest rates in those bond
markets and is favorably affected during periods
when interest rates fall. In addition, the Fund
may recognize capital loss, impacting its ability
to supplement distributable income, when bonds in
the Fund's portfolio are sold or mature at a
price which is less than the Fund's cost.
Any overall downward trend in interest rates can
also be expected ultimately to reduce available
yields to Fund stockholders, which could in turn
result in a reduction in the amount of the Fund's
monthly distributions. While interest rates in
Australia and New Zealand were substantially
higher than interest rates in the U.S. at the
inception of the Fund in 1986, yields on
Australian and New Zealand debt securities have
generally declined in recent years and are
- --------------------------------------------------------------------------------
- 11-
<PAGE>
- --------------------------------------------------------------------------------
currently more comparable to yields available in
the U.S. Although relatively high levels of
interest rates are available in Asian debt
markets, there can be no assurance that these
rates will continue to be obtainable.
- --------------------------------------------------------------------------------
Risks Involved in Proposals approved by Common and Preferred
Asian Investment-- stockholders in May 1998 permit the Fund to
Credit Risk invest up to 35% of its assets in Asian debt
securities, including, with respect to 15% of its
total assets, Asian debt securities which, at the
time of investment, are rated below investment
grade or, if unrated, are in the opinion of the
Investment Manager, of equivalent quality. Among
other things, investment in securities which are
rated below investment grade introduces an
element of speculation, requires skilled credit
analysis and reduces the overall credit quality
of the Fund's portfolio. See "Risk Factors and
Special Considerations -- Risks Involved in Asian
Investment - Credit Risk."
- --------------------------------------------------------------------------------
Risks Involved in The Fund's investments could in the future be
Asian Investment-- adversely affected by any increase in taxes or by
Political and political, economic or diplomatic developments in
Economic Risk Asian Countries as well as Australia and New
Zealand. Moreover, accounting, auditing and
financial reporting standards and other
regulatory practices and requirements vary from
those applicable to entities subject to
regulation in the United States. See "Risk
Factors and Special Considerations - Risks
Involved in Asian Investments--Political and
Economic Risk."
- --------------------------------------------------------------------------------
Risks Involved in In some Asian countries, there is no established
Asian Investment-- secondary market for securities. Therefore,
Liquidity Risks liquidity in these countries is generally low and
transaction costs high. Reduced liquidity often
creates higher volatility, as well as
difficulties in obtaining accurate market
quotations for financial reporting purposes and
for calculating net asset values, and sometimes
also an inability to buy and sell securities.
See "Risk Factors and Special Considerations
- Risks Involved in Asian Investments -
Liquidity Risk."
- --------------------------------------------------------------------------------
Risks Involved in When an investment is made into a volatile new
Asian Investment-- asset class such as Asian debt securities, its
Timing timing can be significant in terms of
performance. It is not possible to predict major
market events and, therefore, investment into
volatile markets, such as Asia, presents the
added risk of timing. If an investment is made in
a new asset class just prior to a significant
downturn in that market, performance will be
worse than it would have been had the investment
been made later. See "Risk Factors and Special
Considerations - Risks Involved in Asian
Investments -- Timing."
- --------------------------------------------------------------------------------
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
Use of Derivatives In addition to using derivatives to manage
currency and interest rate risk with respect to
the Asian portion of the Fund's portfolio, in
seeking to invest in Asian debt, the Fund will
also use derivatives to replicate or substitute
for physical securities. The use of derivatives
will expose the Fund to a variety of risks which
include:
. imperfect correlation between the prices of
derivatives and the movements of the
securities prices, interest rates or currency
exchange rates being hedged;
. the possible absence of a liquid secondary
market for any particular derivative at any
time;
. the potential loss if the counterparty to the
transaction does not perform as promised;
. the possible need to defer closing out
certain positions to avoid adverse tax
consequences;
. the risk that the financial intermediary
"manufacturing" the derivative, being the
most active market maker and offering the
best price for repurchase, will not continue
to create a credible market in the
derivative;
. because derivatives are "manufactured" by
financial institutions for the most part, the
risk that the Fund may develop a substantial
exposure to financial institution
counterparties; and
. the risk that a full and complete
appreciation of the complexity of derivatives
and how future value is affected by various
factors including changing interest rates,
exchange rates and credit quality is not
attained.
See "Risk Factors and Special Considerations --
Use of Derivatives."
- --------------------------------------------------------------------------------
Preferred Stock -- Investors should note that leverage resulting from
Leverage the issuance of Preferred Stock creates risks for
holders of Common Stock, including higher
volatility of both the NAV and market value of the
Common Stock, and that fluctuations in the
dividend rates on Preferred Stock will affect the
yield to holders of Common Stock. If the Fund is
able to realize a net return on its investment
portfolio in excess of the then current dividend
rate of the Preferred Stock, the effect of
leverage permits holders of Common Stock to
realize a higher current rate of return than if
the Fund were not leveraged. On the other hand, if
the current dividend rate on the Preferred Stock
exceeds the net return on the Fund's investment
portfolio, as is currently the case, the Fund's
leveraged capital structure results in a lower
rate of return to holders
- --------------------------------------------------------------------------------
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
of Common Stock than if the Fund were not
leveraged. Similarly, because any decline in the
NAV of the Fund's investments will be borne
entirely by holders of Common Stock, the effect
of leverage in a declining market results in a
greater decrease in NAV to holders of Common
Stock than if the Fund were not leveraged, which
would likely be reflected in a greater decline in
the market price for shares of Common Stock.
Moreover, because dividends and other
distributions on Preferred Stock are payable in
U.S. dollars, a decline in value against the U.S.
dollar of currencies in which portfolio
securities are denominated also impacts
negatively on the rate of return to holders of
Common Stock. If the Fund's current investment
income were not sufficient to meet dividend
requirements on Preferred Stock, it could be
necessary for the Fund to liquidate certain of
its investments, thereby reducing the NAV
attributable to the Fund's Common Stock. See
"Risk Factors and Special Considerations --
Preferred Stock" and "Capital Stock - Leverage."
Holders of Common Stock have generally benefited
from the Fund's issuance of the Preferred Stock
which commenced in 1989. Since the fiscal quarter
beginning August 1, 1997, however, the shrinking
yield differential between Australian and U.S.
interest rates and a depreciating Australian
dollar resulted in the Preferred Stock having a
negative impact on the total return to holders of
Common Stock. Because the Investment
Manager's and the Investment Adviser's fees are
based on the average net assets of the Fund,
which include the Preferred Stock, the Investment
Manager and Investment Adviser have benefited
from the Fund's determination not to redeem the
Preferred Stock.
The proposed investment of a significant
percentage of the Fund's total assets in higher
yielding Asian debt securities, as recommended by
the Fund's Investment Manager and Investment
Adviser, and approved by Common and Preferred
stockholders in May 1998, is expected to increase
the Fund's rate of earnings to a position where
the leverage will have a positive effect on
stockholder returns. See "The Offer--Purpose
of the Offer." The implementation of this
strategy is proposed to occur within
approximately three months of the completion of
the Offer by a combination of investing the
net proceeds of the Offer together with the
proceeds from the sale of existing portfolio
securities and proceeds received from maturing
Australian debt securities held in the Fund's
portfolio. Stockholders are cautioned that
there can be no guarantee of future performance
and the Fund's investment in Asian debt
securities involves risks and uncertainties,
so that actual results may differ materially from
those anticipated as a result of various factors.
The Fund undertakes no obligation to update
or revise the disclosure in this Prospectus with
regard to the effect of investment in Asia on the
Fund's leverage to reflect current events or
circumstances after the date of this Prospectus
or to reflect the occurrence of unanticipated
events.
- --------------------------------------------------------------------------------
- 14 -
<PAGE>
- --------------------------------------------------------------------------------
Year 2000 Risk Many existing computer programs may not properly
process and calculate date-related information and
data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The
Fund could be adversely affected if the service
providers to the Fund do not take adequate steps
to address the Year 2000 Problem prior to January
1, 2000. The problem may also particularly impact
the Fund as it seeks to implement its new Asian
debt securities investment policy. This impact
will depend upon the degree of technological
sophistication of the issuers of securities and
the degree of due diligence they are applying to
the Year 2000 Problem. The Fund is unable to
predict what impact, if any, the Year 2000 Problem
will have on the issuers of securities in which it
invests.
- --------------------------------------------------------------------------------
Discount from Net The Fund's shares have traded in the market below,
Asset Value at and above NAV since the commencement of the
Fund's operations. This characteristic of shares
of closed-end investment companies is a risk
separate and distinct from the risk that the
Fund's NAV will decrease. In the twelve months
ended July 31, 1998, the Fund's shares have traded
in the market at an average discount to NAV of
5.05%. See "Description of Common Stock."
- --------------------------------------------------------------------------------
Non-Diversified The Fund is classified as a "non-diversified"
Status investment company under the Investment Company
Act, which means that the Fund is not limited by
the Investment Company Act as to the proportion of
its assets that may be invested in the securities
of a single issuer. As a non-diversified
investment company, the Fund may invest a greater
proportion of its assets in the obligations of a
smaller number of issuers and, as a result, will
be subject to greater risk with respect to its
portfolio securities. Although the Fund must
diversify its holdings in order to be treated as a
regulated investment company under the provisions
of the Internal Revenue Code of 1986, as amended
(the "Code"), the Fund may be more susceptible to
any single economic, political or regulatory
occurrence than would be the case if it had
elected to diversify its holdings sufficiently to
be classified as a "diversified" investment
company under the Investment Company Act. See
"Investment Objective and Policies; Investment
Restrictions" and "Taxation -- United States."
- --------------------------------------------------------------------------------
Tax Considerations Withholding and/or other taxes may apply in the
countries in which the Fund invests, which will
reduce the Fund's cash return in those countries.
The Fund intends to elect, when eligible, to
"pass-through" to the Fund's stockholders, as a
deduction or credit, the amount of foreign income
and similar taxes paid by the Fund. See
"Taxation."
- --------------------------------------------------------------------------------
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
Anti-Takeover The Fund presently has a provision in its By-Laws
Provision that could have the effect of limiting the ability
of other entities or persons to acquire control of
the Fund. The By-Laws provide for a staggered
election of those Directors who are elected by the
holders of Common Stock, with the Directors
divided into three classes, each having a term of
three years. Accordingly, only those Directors in
one class may be changed in any one year and it
would require two years to change a majority of
the Board of Directors. This system of electing
Directors may be regarded as having an
anti-takeover effect, and may have the effect of
maintaining the continuity of management and thus
may make it more difficult for the Fund's
stockholders to change the majority of Directors.
See "Capital Stock" and "Certain Provisions of the
Articles of Amendment and Restatement and
By-Laws."
- --------------------------------------------------------------------------------
- 16 -
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price)(1)........ ____%
Dividend Reinvestment and Cash Purchase Plan Fees................ None
ANNUAL EXPENSES ATTRIBUTABLE TO COMMON STOCK (AS A PERCENTAGE OF AVERAGE
NET ASSETS)(2)
Management Fee................................................... ----%
Administrative Fee............................................... ----%
Other Expenses(2)................................................ ----%
-----
Total Annual Expenses(3)......................................... ----%
=====
- ----------
(1) The Fund has agreed to pay the Dealer Managers a fee for their
financial advisory, marketing and soliciting services equal to _____%
of the aggregate Subscription Price for the Shares issued pursuant to
the Offer and to reimburse Prudential Securities Incorporated for
out-of-pocket expenses up to $_________. In addition, the Fund has
agreed to pay a fee to each of the Subscription Agent and the
Information Agent estimated to be _________ and ________, respectively,
which includes reimbursement for their out-of-pocket expenses related
to the Offer. Total offering expenses are estimated to be
$______________________. These fees will be borne by the Fund and
indirectly by all of the Fund's stockholders, including those who do
not exercise their Rights. See "Distribution Arrangements."
(2) Fees payable under the Management Agreement and Administration
Agreement are calculated on the basis of the Fund's average weekly net
assets applicable to the Fund's Common and Preferred Stock. See
"Management Agreement and Advisory Agreement" and "Administration
Agreement." "Other Expenses" have been estimated for the current fiscal
year.
(3) The indicated ____% expense ratio assumes that the Offer is fully
subscribed (not including the Over-Subscription Privilege), yielding
estimated net proceeds of approximately $________ million (assuming an
Estimated Subscription Price of $________) and that, as a result,
based on the Fund's net assets of $________ attributable to
stockholders on ________, 1998, the average net assets attributable to
stockholders would be $________ million. It also assumes that net
assets attributable to stockholders will not increase or decrease due
to currency fluctuations. The indicated ratio reflects all expenses of
the Offer.
The above table is intended to assist the Fund's investors in
understanding the various costs and expenses associated with investing in the
Fund through the exercise of Rights.
HYPOTHETICAL EXAMPLE
An investor would directly or indirectly pay the following expense on a
$1,000 investment in the Fund, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$ $ $ $
This Hypothetical Example assumes that all dividends and other
distributions are reinvested at NAV and that the percentage amounts listed under
Annual Expenses above remain the same in the years
- 17 -
<PAGE>
shown. (See also Note (3) above for assumptions made in calculating the expenses
in this Hypothetical Example.) The above tables and the assumption in the
Hypothetical Example of a 5% annual return are required by regulation of the
Securities and Exchange Commission (the "Commission") applicable to all
investment companies; the assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Fund's shares.
For more complete descriptions of certain of the Fund's costs and expenses, see
"Management of the Fund."
This Hypothetical Example should not be considered a representation of
past or future expenses, and the Fund's actual expenses may be greater or less
than those shown.
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each year of the
ten year period ended October 31, 1997, has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports thereon were
unqualified. This information should be read in conjunction with the Financial
Statements and Notes thereto and incorporated by reference in this Prospectus.
- 18 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six
months
ended
April 30, Years Ended October 31,
------------------------------------------------------------------------------------
PERFORMANCE 1998 1997(a) 1996(a) 1995(a) 1994 1993 1992 1991 1990 1989 1988
(unaudited)
------- ---- ------- ------- ---- ---- ---- ---- ---- ---- ----
Net asset value per
common share, $8.85 $9.93 $9.36 $8.82 $10.09 $9.61 $11.31 $10.02 $9.31 $10.81 $8.74
beginning of period.. --------- --------- --------- --------- --------- --------- ------- ------- ------- ------- -------
Net investment income. .42 .87 .87 .93 1.01 1.19 1.29 1.40 1.49 1.32 .97
Net realized and
unrealized (loss) on
investments and
foreign currencies... (1.03) (.96) 1.13 1.16 (1.03) .58 (1.42) 1.37 .73 (1.22) 2.50
--------- --------- --------- --------- --------- --------- ------- ------- ------- ------- -------
Total from
investment
operations........ (.61) (.09) 2.00 2.09 (.02) 1.77 (.13) 2.77 2.22 .10 3.47
--------- --------- --------- --------- --------- --------- ------- ------- ------- ------- -------
Dividends from net
investment income
to preferred
stockholders......... (.09) (.17) (.14) (.17) (.12) (.11) (.14) (.24) (.30) (.20) ---
Dividends from net
investment income
to common
stockholders......... (.33) (.82) (.83) (.83) (.84) (1.08) (1.10) (1.24) (1.13) (1.08) (1.40)
Dividends in excess
of net investment
income to common
stockholders......... (.03) --- --- --- --- --- --- --- --- --- ---
Distributions from
net capital and
currency gains to
preferred
stockholders......... --- --- (.02) (.01) (.01) (.01) (.01) --- --- --- ---
Distributions from
net capital and
currency gains to
common stockholders.. --- --- (.03) (.15) (.17) (.08) (.29) --- (.08) (.23) ---
--------- --------- --------- --------- --------- --------- ------- ------- ------- ------- -------
Total dividends and
distributions....... (.45) (.99) (1.02) (1.16) (1.14) (1.28) (1.54) (1.48) (1.51) (1.51) (1.40)
--------- --------- --------- --------- --------- --------- ------- ------- ------- ------- -------
Capital charge in
respect to issuance
of shares............ --- --- (.41) (.39) (.11) (.01) (.03) --- --- (.09) ---
--------- --------- --------- --------- --------- --------- ------- ------- ------- ------- -------
Net asset value per
common share,
end of period........ $7.79 $8.85 $9.93 $9.36 $8.82 $10.09 $9.61 $11.31 $10.02 $9.31 $10.81
========= ========= ========= ========= ========= ========= ======= ======= ======= ======= =======
Market price per
common share,
end of period........ $7.125 $8.125 $8.94 $9.31 $9.56 $10.25 $10.00 $10.94 $8.94 $8.88 $9.56
========= ========= ========= ========= ========= ========= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN
BASED ON+:
Market value.......... (8.12)% (0.42)% 5.59% 8.78% 3.32% 15.00% 4.11% 38.36% 14.95% 7.38% 54.42%
Net asset value....... (7.77)% (2.37)% 16.73% 18.54% (3.19%) 17.80% (3.22%) 27.62% 22.88% (.44%) 44.84%
RATIOS TO AVERAGE NET
ASSETS OF COMMON
STOCKHOLDERS/SUPPLEMENTAL
DATA#:
Expenses++............ 1.44%* 1.25% 1.29% 1.47% 1.41% 1.44% 1.43% 1.59% 1.54% 1.35% 1.04%
Net investment income
before preferred
stock dividends...... 10.35%* 9.17% 9.16% 10.83% 10.68% 12.13% 12.14% 13.42% 15.47% 13.46% 9.51%
Preferred stock
dividends............ 2.10%* 1.78% 1.45% 1.87% 1.20% 1.13% 1.25% 2.31% 3.11% 2.07% ---
Net investment income
available to common
stockholders......... 8.25%* 7.39% 7.71% 8.96% 9.48% 11.00% 10.89% 11.11% 12.36% 11.39% 9.51%
Portfolio turnover
rate................. 21% 85% 63% 50% 34% 23% 17% 83% 80% 46% 60%
Net assets of common
stockholders end of
period(000)..........$1,517,721 $1,723,025 $1,931,894 $1,452,205 $1,088,631 $1,050,084 $977,933 $972,569 $861,379 $800,166 $928,689
Average net assets of
common stockholders
(000)................$1,590,108 $1,848,378 $1,627,916 $1,201,383 $1,174,394 $1,011,324 $938,072 $899,175 $826,862 $832,779 $875,609
Senior securities
(preferred stock)
outstanding (000).... $600,000 $600,000 $600,000 $475,000 $400,000 $350,000 $300,000 $300,000 $300,000 $300,000 ---
Asset coverage of
preferred stock,
end of period........ 353% 387% 422% 406% 372% 400% 426% 424% 387% 367% ---
</TABLE>
- -------------
(a) Calculated based upon weighted average shares outstanding during the
year.
* Annualized.
+ Total investment return based on market value is calculated based on the
Fund's market value on the first and last day of each period and total
investment return based on NAV is calculated based on the Fund's NAV on
such days. Dividends and distributions are assumed, for purposes of the
calculations, to be reinvested at prices obtained under the Fund's
dividend reinvestment and cash purchase plan. Total investment returns
do not reflect brokerage commissions. Total investment returns for
periods of less than one full year are not annualized. Generally, total
investment returns based on NAV will be higher than total investment
returns based on market value in periods where there is an increase in
the discount or a decrease in the premium of the market value to the NAV
from the beginning to the end of such periods. Conversely, total
investment returns based on NAV will be lower than total investment
returns based on market value in years where there is a decrease in the
discount or an increase in the premium of the market value to the NAV
from the beginning to the end of such periods.
++ Includes expenses of both Preferred and Common Stock.
# Ratios calculated on the basis of income, expenses and preferred share
dividends applicable to both the Common and Preferred Stock relative to
the average net assets of Stockholders.
NOTE: Contained above is operating performance for a share of Common Stock
outstanding, total investment return, ratios to average net assets of
Stockholders and other supplemental data for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data
for the Fund's Common Stock.
- 19 -
<PAGE>
SENIOR SECURITIES
The Fund currently has outstanding an aggregate of 24,000 shares of
Preferred Stock. The Preferred Stock has been issued in nine series, Series A
through I. The first three series were issued on January 19, 1989, the fourth
series on August 1, 1989, the fifth series on December 16, 1992, the sixth
series on December 20, 1993, the seventh series on July 27, 1995 and the eighth
and ninth series on September 9, 1996. The shares of Preferred Stock are senior
securities having priority over the shares of Common Stock as to distribution of
assets and payment of dividends. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of Preferred
Stock are entitled to receive a preferential liquidating distribution of $25,000
per share (the "Liquidation Preference"), plus accrued and unpaid dividends
(whether or not declared), before any payment is made to holders of Common
Stock. The average market value of a share of Preferred Stock has been equal to
the Liquidation Preference. The following tables set forth certain information
relating to the Preferred Stock.
<TABLE>
<CAPTION>
PREFERRED STOCK, SERIES A-I
Total Amount of Asset Coverage Per Liquidation
Preferred Stock $25,000 Share of Preference Per
Period Ended Outstanding(1) Preferred Stock(2) $25,000 Share(3)(4)
------------ -------------- ------------------ -------------------
<S> <C> <C> <C> <C>
October 31, 1988 -- -- --
October 31, 1989 $300,000,000 $ 91,747.25 $25,000
October 31, 1990 $300,000,000 $ 96,883.75 $25,000
October 31, 1991 $300,000,000 $106,141.00 $25,000
October 31, 1992 $300,000,000 $106,520.50 $25,000
October 31, 1993 $350,000,000 $100,006.00 $25,000
October 31, 1994 $400,000,000 $ 93,039.50 $25,000
October 31, 1995 $475,000,000 $101,431.75 $25,000
October 31, 1996 $600,000,000 $80,495.59 $25,000
October 31, 1997 $600,000,000 $71,792.73 $25,000
April 30, 1998 $600,000,000 $63,238.38 $25,000
</TABLE>
- ----------
(1) Based on the number of shares of Preferred Stock outstanding multiplied
by the Liquidation Preference per share.
(2) Asset coverage per share of Preferred Stock is derived by subtracting
the aggregate Liquidation Preference of all of the series of Preferred
Stock outstanding ($300,000,000 through 1992, $350,000,000 in 1993,
$400,000,000 in 1994, $475,000,000 in 1995 and $600,000,000 in 1996,
1997 and 1998) from the total assets of the Fund less (i) all
liabilities and indebtedness not represented by the Preferred Stock and
(ii) any accrued but unpaid dividends on the Preferred Stock as at the
end of the fiscal periods indicated. This sum is then divided by the
number of shares of Preferred Stock outstanding.
(3) Plus accrued and unpaid dividends, if any.
(4) The liquidation preference as of October 31, 1995 was $100,000 per
share of Preferred Stock, Series A-F, and $25,000 per share of
Preferred Stock, Series G. Effective April 25, 1996, by means of stock
splits, the liquidation preference of Preferred Stock, Series A-F was
reduced to $25,000 per share and an additional aggregate 12,000 shares
of Preferred Stock, Series A-F were issued.
- 20 -
<PAGE>
The dividend rates on the outstanding Preferred Stock are established
through an auction process. The dividend rates on the series A-D shares are set
every 28 days and the dividend rates on the Series E, F, G, H and I shares are
set every 7 days. Generally, the dividend rate has represented a discount from
the 30-day commercial paper rate. At July 31, 1998, the annual dividend rates on
Series A through I were, respectively, 5.20%, 5.21%, 5.245%, 5.245%, 5.19%,
5.15%, 5.24%, 5.20% and 5.20%. At these rates, the annual return the Fund's
portfolio must experience (net of expenses) in order to cover dividend payments
on all series is 1.60%.
The following table is designed to illustrate the effect on the return
to a holder of the Fund's Common Stock of the leverage obtained by the issuance
of the Preferred Stock, assuming hypothetical annual returns on the Fund's
portfolio of minus 10 to plus 10 percent. As can be seen, leverage generally
increases the returns to stockholders when portfolio returns are positive and
decreases returns when the portfolio returns are negative. Actual returns may be
greater or less than those appearing in the table and may be enhanced or
diminished by fluctuations in foreign currency. See "Risk Factors and Special
Considerations -- Preferred Stock."
Assumed Portfolio Return (net of expenses) -10% -5% 0% 5% 10%
Corresponding Common Stock Return(1) -15.39% -8.65% -1.91% 4.83% 11.57%
- ----------
(1) In order to compute "Corresponding Common Stock Return," the "Assumed
Portfolio Return" is multiplied by the total value of Fund assets as of
the beginning of the fiscal year (November 1, 1997) to obtain an
assumed return to the Fund. This rate is then reduced by the value of
Preferred Stock dividends that would be paid during the year
($32,901,875) based on the dividend rates in effect at the beginning of
the fiscal year (for Series A through I, respectively, 5.50%, 5.40%,
5.50%, 5.40%, 5.21%, 5.35%, 5.625%, 5.625%, and 5.70%) in order to
determine the return available to holders of the Fund's Common Stock.
Return available to holders of the Fund's Common Stock is then divided
by the total value of the Fund's assets attributable to stockholders as
of the beginning of the fiscal year ($1,723,025,462) to determine
"Corresponding Common Stock Return."
- 21 -
<PAGE>
THE OFFER
TERMS OF THE OFFER
The Fund is issuing to Record Date Stockholders non-transferable
rights to subscribe for an aggregate of ______ Shares. Each Record Date
Stockholder is being issued one-third of a non-transferable Right for each share
of Common Stock owned on the Record Date. The Rights entitle the stockholder to
acquire at the Subscription Price one Share for each whole Right held. Rights
may be exercised at any time during the Subscription Period, which commences on
________, 1998 and ends at 5:00 p.m., New York City time, on ________, 1998,
unless extended. A stockholder's right to acquire, during the Subscription
Period at the Subscription Price, one Share for each whole Right held is
hereinafter referred to as the "Primary Subscription." A stockholder who
exercises Rights pursuant to the Primary Subscription is hereinafter referred to
as an "Exercising Stockholder." Only the underlying Shares will be listed for
trading on the AMEX and the PSE. Stockholders who receive, and who are left
with, fractional Rights will be unable to exercise the Rights and will not be
entitled to receive any cash in lieu thereof. Fractional shares will not be
issued upon the exercise of Rights; accordingly, only whole Rights may be
exercised. The Rights will be evidenced by subscription certificates which will
be mailed to Record Date Stockholders.
In addition, stockholders who fully exercise all Rights issued to them
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one Share) are entitled to subscribe for additional
Shares pursuant to the Over-Subscription Privilege. For purposes of determining
the number of Shares a stockholder may acquire pursuant to the Offer,
broker-dealers, trust companies, banks or others whose Shares are held of record
by Cede or by any other depository or nominee will be deemed to be the holders
of the Rights that are issued to Cede or the other depository or nominee on
their behalf. Shares acquired pursuant to the Over-Subscription Privilege are
subject to allotment or increase, which is more fully discussed below under
"Over-Subscription Privilege."
PURPOSE OF THE OFFER
The Fund seeks to maintain a stable monthly cash distribution
consistent with its principal investment objective of providing current income.
To this end, in February 1989, the Fund began paying a regular monthly
distribution in place of the previous quarterly payments and, in September 1993,
the Fund adopted a policy of supplementing monthly distributions paid out of
available net investment income with realized capital gains. As interest rates
have fallen in Australia, on the basis of the advice of the Investment Manager
and Investment Adviser, the Fund's Board of Directors from time to time has
reduced the level of monthly distribution payments when the previous
distribution level could no longer be sustained. The last reduction occurred in
September 1997, when the regular monthly distribution was reduced from 7 cents
per share to 6 cents per share.
In order to address the prospect of declining distributions, the Fund's
Investment Manager and Investment Adviser, in August 1997, proposed to the Board
of Directors that the Fund's investment policies be expanded to enable the Fund
to invest up to 35% of its assets in Asian debt securities. The Investment
Manager and Investment Adviser indicated that in their view the relatively high
level of interest rates available
- 22 -
<PAGE>
in Asian markets compared with interest rates prevailing in Australia and New
Zealand offered an attractive opportunity to enhance the Fund's earnings above
the current rate, although they also emphasized that this would introduce an
extra element of risk in implementing the Fund's investment objective.
After in depth consideration, the Fund's Board determined to recommend
to the Fund's Common and Preferred stockholders that the Fund's investment
policies and investment structure be amended in order to enable the Fund to
invest up to 35% of its assets in Asian debt securities. That proposal was
approved by the Common and Preferred stockholders on May 14, 1998. The proxy
statement soliciting Common and Preferred stockholder approval indicated that if
investment in Asian debt securities received Common and Preferred stockholder
approval, a combination of the proceeds of the sale of some of the Australian
debt securities held in the Fund's portfolio, the reinvestment of maturing
Australian debt securities in the portfolio and the proceeds of a likely rights
offering would be utilized to fund investment into Asia. The proxy statement
also disclosed that because rights offerings are frequently dilutive to
stockholders, the Fund's Directors would first seek the advice of an independent
consultant with respect to the ultimate funding of a large portion of the Fund's
investment in Asian securities through a rights offering.
Following the vote of the Common and Preferred Stockholders, the
Investment Manager and Investment Adviser began a thorough analysis of how best
to implement the investment in Asian debt securities in terms of both the timing
of investment and its appropriate funding. The Investment Manager and Investment
Adviser jointly prepared a written report addressing these issues dated July 24,
1998 (the "EquitiLink Report"), which concluded that, in terms of investment
timing, the period through the end of 1998 and into early 1999 appeared to
present a favorable opportunity for Asian investment. The EquitiLink Report
indicated that although the Asian markets have experienced significant
volatility and continue to involve risk, the current level of yields on Asian
debt investments could make it timely for the Fund to raise the capital
necessary to support investment into Asian debt by approving a one-for-three
rights offering to existing stockholders.
The proposal was first reviewed by a Sub-Committee composed of five
Directors, Malcolm Fraser, Neville Miles, William Potter, Peter Sacks and John
Sheehy, who are not interested Directors of the Fund and were selected by the
Board to evaluate the proposal. In early October of 1997, the Sub-Committee
engaged Chase Securities Inc. ("Chase") on behalf of the Board, to act as the
Fund's exclusive financial adviser. The proposal was reviewed by Chase which had
earlier advised the Sub-Committee and the Board with respect to the Investment
Manager's proposal to enter the Asian debt markets. In its written report to the
Sub-Committee dated July 30, 1998 (the "Chase Report"), Chase said that it had
reviewed the EquitiLink Report and discussed the EquitiLink Report with the
representatives of the Investment Manager and Investment Adviser. On the basis
of its review and analysis, Chase advised the Board that, having reviewed the
factual information presented by the Investment Manager and the Investment
Adviser in the EquitiLink Report, "...the assumptions contained therein are
appropriate and the factual information contained therein is accurate, in each
case in all material respects."
At a meeting held on July 22, 1998, the Sub-Committee met to consider
the EquitiLink Report. After hearing from representatives of Chase and extensive
discussion, the Sub-Committee agreed to recommend to the full Board that the
Fund engage in a rights offering on the terms set forth in this Prospectus,
subject to a final discussion with Chase. At a subsequent meeting of the
Sub-Committee on July 30, 1998, after discussing the proposal with the
Investment Manager and Investment Adviser and hearing further from
representatives of Chase, the Sub-Committee voted to recommend to the Board that
the Fund
- 23 -
<PAGE>
proceed with the recommended rights offering. Immediately thereafter, the Board
met to consider the matter. After reviewing the EquitiLink Report as well as the
Chase Report, and discussing the proposal with the Sub-Committee as well as
representatives of Chase, the Investment Manager and the Investment Adviser, the
Board determined, by the unanimous vote of the independent Directors, as well as
the unanimous vote of the full Board, to recommend a rights offering upon the
terms set forth in this Prospectus.
The Investment Adviser believes that an increase in the size of the
Fund should result in an incidental modest reduction in the Fund's expense
ratio, which would be of long-term benefit to stockholders. For the six months
ended April 30, 1998 and the six fiscal years ended October 31, 1997, 1996,
1995, 1994, 1993 and 1992, the Fund's annualized expense ratios were,
respectively, 1.44%, 1.25%, 1.29%, 1.47%, 1.41%, 1.44% and 1.43%, compared with
expense ratios of 1.59% and 1.54% for the 1991 and 1990 fiscal years. In the
opinion of the Investment Adviser, the expense ratios for the 1997, 1996, 1995,
1994 and 1992 fiscal years (which are the fiscal years in which the proceeds of
the 1996, 1995, 1993 and 1992 rights offerings were invested) were favorably
affected by the rights offerings, since the proceeds served to offset a decrease
in the total net assets of the Fund in those years occasioned by unfavorable
currency and market value movements.
The Offer also seeks to reward stockholders by giving them the right to
purchase additional Shares at a discount, although stockholders who do not fully
exercise their Rights will own, upon completion of the Offer, a smaller
proportional interest in the Fund than they owned prior to the Offer. The Board
of Directors took this into account in adopting the Subscription Price formula
applicable to the Offer and selecting the ratio of Rights offered relative to
the number of shares held. See "The Offer" and "Risk Factors and Special
Considerations."
THERE CAN BE NO ASSURANCE THAT THE FUND OR ITS STOCKHOLDERS WILL
ACHIEVE ANY OF THE FOREGOING OBJECTIVES OR BENEFITS THROUGH THE OFFER.
The Fund has made four prior rights offerings which the Investment
Manager and Investment Adviser believe had a generally favorable effect on
returns to Common Stock holders. Offerings were made in 1992 and 1993 to give
the Fund the flexibility to adjust the average maturity of its portfolio, and to
make appropriate tactical adjustments to its portfolio, while the purpose of the
1995 rights offering was to increase Fund assets available for investment in the
Australian and New Zealand bond markets in light of the higher yields available
compared with U.S. dollar-denominated investments of similar quality. In 1996,
the Fund sought through the rights offering to maintain its then current level
of monthly distributions by investing in Australian bonds which it was
anticipated would allow the Fund to realize capital gains to supplement the
Fund's investment income. In the case of the 1992 rights offering, the 1995
rights offering and the 1996 rights offering, the Fund used the net proceeds to
capture higher yields then available for long-term securities, and in 1993 it
sought to reduce the Fund's exposure to long-term securities in order to reduce
volatility in the Fund's NAV in a period of changing market conditions.
- 24 -
<PAGE>
In the case of all four rights offerings, the Fund sought to emphasize
investment in the Australian Eurobond market and to provide modest reductions in
the Fund's expense ratio. In this respect, overall, the Fund's investment in
Australian dollar Eurobonds rose from 15.8% of its total assets at October 31,
1992, immediately prior to the investment of the proceeds of the 1992 offering,
to 24% of the Fund's total assets at January 31, 1994, the last day of the
quarter in which the proceeds of the 1993 offer were invested. Prior to the 1995
rights offering, 17.5% of the Fund's total assets were invested in Eurobonds.
Following the investment of the proceeds of that offering, the Fund's holding in
Eurobonds represented 21.1% of its assets. Immediately prior to the 1996 rights
offering, 26.25% of the Fund's total assets were invested in Eurobonds.
Following the investment of the proceeds of the 1996 rights offering, the Fund's
holding in Eurobonds represented 28.2% of its assets at October 31, 1996 and
32.5% of its assets at April 30, 1997. The Fund intends to continue its
investment approach of emphasizing the Eurobond markets, where securities are
exempt from the 10% withholding tax imposed on domestic Australian issues. See
"Taxation -- Foreign Taxes -- Australia." As noted above, the Fund's expense
ratio was also favorably affected by the rights offering.
Although the Fund has sought to restrict potential dilution, the extent
of dilution depends on the amount, if any, by which the Subscription Price less
fees paid to the Dealer Managers and other expenses of the Offer represents a
discount to NAV on the date new Shares are issued. The dilution was $0.03 per
share in the 1992 offering, $0.10 per share in the case of the 1993 offering,
$0.38 per share in the case of the 1995 offering and $0.40 per share in the case
of the 1996 offering.
Because their fees are based on the magnitude of the Fund's assets, the
Fund's Investment Manager and Investment Adviser, as well as the Administrator,
will benefit from the Offer. See "Management Agreement and Advisory Agreement."
It is not possible to state precisely the amount of additional compensation
these entities will receive as a result of the Offer because it is not known how
many Shares will be subscribed for and because the net proceeds of the Offer
will be invested in additional portfolio securities which will fluctuate in
value.
Although the Board of Directors has no present intention of proposing
further rights offerings, the Board may consider, from time to time, making
additional offerings when, in its view, investment opportunities are presented
that lend themselves to the investment of new funds and further rights offerings
would be in the best interests of the Fund and its Stockholders. Any rights
offerings will be made in accordance with the Investment Company Act, but may or
may not be made on terms similar to the Offer.
OVER-SUBSCRIPTION PRIVILEGE
If some stockholders do not exercise all of the Rights initially issued
to them, any Shares for which subscriptions have not been received from
stockholders will be offered by means of the Over-Subscription Privilege to the
stockholders who have exercised all the Rights initially issued to them and who
wish to acquire more than the number of Shares for which the Rights issued to
them are exercisable. Exercising Stockholders who exercise on Primary
Subscription all of the Rights initially issued to them will be asked to
indicate, on the Exercise Form which they submit with respect to the exercise of
the Rights initially issued to them, how many Shares they would like to purchase
pursuant to the Over-Subscription Privilege. If sufficient Shares remain, as a
result of unexercised Rights, all over-subscriptions will be honored in full. If
sufficient Shares are not available to honor all over-subscriptions, the Fund
may, at its discretion, issue up to an additional 25% of the Shares to honor the
- 25 -
<PAGE>
over-subscriptions. To the extent the Fund determines not to issue additional
Shares to honor all over-subscriptions, the available Shares will be allocated
among those who over-subscribe based on the number of Rights originally issued
to them, so that the number of Shares issued to Exercising Stockholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the number of Shares owned by them on the Record Date. The
percentage of remaining Shares each over-subscribing Exercising Stockholder may
acquire will be rounded down to result in delivery of whole Shares. The
allocation process may involve a series of allocations to assure that the total
number of Shares available for over-subscriptions is distributed on a pro-rata
basis.
The Investment Manager, the owner of 59,124 shares, intends to
exercise all of the Rights initially issued to it so that, if additional Shares
remain after all over-subscriptions other than the over-subscriptions submitted
by the Investment Manager are honored in full, the Investment Manager may
purchase all or any of the remaining Shares. If additional Shares do not remain
after all over-subscriptions by stockholders other than the Investment Manager
are honored, then the Investment Manager will not receive Shares pursuant to its
Over-Subscription Privilege. Any Shares purchased by the Investment Manager will
be "restricted shares" which can be publicly sold by the Investment Manager only
if registered under the Securities Act of 1933, as amended (the "Securities
Act"), or pursuant to an exemption from registration, including pursuant to the
exemption for limited resales provided by Rule 144 promulgated thereunder. In
general, under Rule 144, as currently in effect, an "affiliate" of the Fund is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding shares of Common Stock or
the average weekly reported trading volume of the Common Stock during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain restrictions on the manner of sale, to notice requirements and to the
availability of current public information about the Fund. In addition, any
profit resulting from the Investment Manager's sale of shares within a period of
less than six months from the purchases will be returned to the Fund.
The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Offer.
THE SUBSCRIPTION PRICE
The Subscription Price will be 95% of the lower of (a) the average of
the last reported sales price of a share of the Fund's Common Stock on the AMEX
on ________, 1998 and the four preceding business days or (b) the NAV per share
as of the Pricing Date. For example, if the average of the last reported sales
price on the AMEX on the Pricing Date and the four preceding business days of a
share of the Fund's Common Stock is $________, and the NAV per share is
$________, the Subscription Price will be $________ (95% of $________). If,
however, the average of the last reported sales price of a share on the AMEX on
the Pricing Date and the four preceding business days is $________ and the NAV
per share is $________, the Subscription Price will be $________ (95% of
$_______). See "Description of Common Stock."
Because the Expiration Date and the Pricing Date are each __________,
1998, Exercising Stockholders will not know at the time of exercise the
Subscription Price for Shares acquired pursuant to the exercise.
- 26 -
<PAGE>
The Fund announced the Offer prior to the commencement of trading on
the AMEX on __________, 1998. The NAV per share of the Common Stock at the close
of business on ________, 1998 and _______, 1998 was $________ and $_______,
respectively, and the last reported sales price of a share of the Fund's Common
Stock on the AMEX on those dates was $_______ and $_______, respectively.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on ________,
1998, unless extended. Rights will expire on the Expiration Date and thereafter
may not be exercised.
Any extension, termination, or amendment will be followed as promptly
as practical by announcement thereof. In the case of an extension, the
announcement will be issued no later than 9:00 a.m., New York City time, on the
next business day following the previously scheduled Expiration Date. The Fund
will not, unless otherwise obligated by law, have any obligation to publish,
advertise, or otherwise communicate any announcement other than by making a
release to the Dow Jones News Service or any other means of announcement as the
Fund deems appropriate.
SUBSCRIPTION AGENT
State Street Bank and Trust Company, P.O. Box 9061, Boston,
Massachusetts 02205 will perform administrative, processing, invoice, and other
services as Subscription Agent in connection with the Offer. Signed Exercise
Forms should be sent to the Subscription Agent by one of the methods described
below. Stockholders may also subscribe for the Offer by contacting their brokers
and nominees. The Fund reserves the right to accept Exercise Forms actually
received on a timely basis at any of the addresses listed.
The Subscription Agent will receive a fee for its services, estimated
to be $_______, including reimbursement for all out-of-pocket expenses related
to the Offer. The Subscription Agent is also the Fund's Custodian, Dividend
Paying Agent, Transfer Agent and Registrar with respect to the Common Stock.
- 27 -
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXERCISE FORM
DELIVERY METHOD ADDRESS/NUMBER
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
By Mail The First Australia Prime Income Fund, Inc.
c/o State Street Bank and Trust Company
P.O. Box 9061
Boston, MA 02205
- ----------------------------------------------------------------------------------------------------------------------------
By Hand to New York Delivery Window The First Australia Prime Income Fund, Inc.
c\o Banc Boston Trust Company of New York
55 Broadway, 3rd Floor
New York, NY 10006
- ----------------------------------------------------------------------------------------------------------------------------
By Express Mail or Overnight Courier The First Australia Prime Income Fund, Inc.
c/o Boston EquiServe
150 Royall Street
Mail Stop #45-02-53
Canton, MA 02021
- ----------------------------------------------------------------------------------------------------------------------------
By Notice of Guaranteed Delivery Contact your broker-dealer, trust company, bank, or other
nominee to notify the Fund of your intent to exercise the
Rights.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN THE ABOVE DOES NOT CONSTITUTE GOOD
DELIVERY.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the
Information Agent at its telephone number and address listed below:
The information agent for the Offer is:
SHAREHOLDER
COMMUNICATIONS CORPORATION
New York, New York
Toll Free: (800) 733-8481, Extension 422
or
Call Collect: (212) 805-7000
Stockholders may also contact their brokers or nominees for information
with respect to the Offer.
- 28 -
<PAGE>
The Information Agent will receive a fee estimated to be $30,000 and
reimbursement for all out-of-pocket expenses related to the Offer.
EXERCISE OF RIGHTS
Rights may be exercised by completing and signing the Exercise Form and
mailing it in the envelope provided, or otherwise delivering the completed and
signed Exercise Form to the Subscription Agent, together with payment for the
Shares as described below under "Payment for Shares." Stockholders may also
exercise Rights by contacting their broker, banker or trust company who can
arrange, on their behalf, to guarantee delivery of payment and of a properly
completed and executed Exercise Form. A fee may be charged for this service.
Completed Exercise Forms and related payments must be received by the
Subscription Agent prior to 5:00 p.m., New York City time, on or before the
Expiration Date (unless payment is effected by means of a Notice of Guaranteed
Delivery as described below under "Payment for Shares") at the offices of the
Subscription Agent at the address set forth above. Fractional Shares will not be
issued, and stockholders who receive, or who are left with, less than a whole
Right will not be able to exercise those Rights.
Exercising Stockholders Who Are Record Owners. Exercising Stockholders
who are owners of record may choose either option set forth under "Payment for
Shares" below. If time is of the essence, alternative (2) will permit delivery
of the Exercise Form and payment after the Expiration Date.
Investors Whose Shares Are Held By A Nominee. Stockholders whose shares
are held by a nominee such as a broker or trustee must contact the nominee to
exercise their Rights. In that case, the nominee will complete the Exercise Form
on behalf of the Exercising Stockholder and arrange for proper payment by one of
the methods set forth under "Payment for Shares" below.
Nominees. Nominees who hold shares for the account of others should
notify the respective beneficial owners of the shares as soon as possible to
ascertain the beneficial owners' intentions and to obtain instructions with
respect to exercising the Rights. If a beneficial owner so instructs, the
nominee should complete the Exercise Form and submit it to the Subscription
Agent with the proper payment described under "Payment for Shares" below.
All questions as to the validity, form, eligibility (including times of
receipt and matters pertaining to beneficial ownership) and the acceptance of
subscription forms and the Subscription Price will be determined by the Fund,
which determinations will be final and binding. No alternative, conditional or
contingent subscriptions will be accepted. The Fund reserves the right to reject
any or all subscriptions not properly submitted or the acceptance of which
would, in the opinion of Fund's counsel, be unlawful.
PAYMENT FOR SHARES
Exercising Stockholders may exercise their Rights and pay for Shares
subscribed for pursuant to the Primary Subscription and Over-Subscription
Privilege in one of the following ways:
- 29 -
<PAGE>
(1) Exercising Stockholders can send the Exercise Form together with payment for
the Shares subscribed for pursuant to the Primary Subscription and for
additional Shares they would like to subscribe for pursuant to the
Over-Subscription Privilege to the Subscription Agent based on the Estimated
Subscription Price of $____. To be accepted, the payment, together with the
executed Exercise Form, must be received by the Subscription Agent at one of the
Subscription Agent's offices set forth above, prior to 5:00 p.m., New York City
time, by the Expiration Date. The Subscription Agent will deposit all the Share
purchase checks received by it prior to the final due date into a segregated
interest bearing account (which interest will accrue to the benefit of the Fund)
pending proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE
UNITED STATES, MUST BE PAYABLE TO THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
AND MUST ACCOMPANY AN EXECUTED EXERCISE FORM FOR THE EXERCISE FORM TO BE
ACCEPTED.
(2) Alternatively, a subscription will be accepted by the Subscription Agent if,
prior to 5:00 p.m., New York City time, on the Expiration Date, the Subscription
Agent has received a notice of guaranteed delivery by facsimile (telecopy) or
otherwise from a bank, a trust company, or a New York Stock Exchange member
guaranteeing delivery of (i) payment of the full Subscription Price for the
Shares subscribed for pursuant to the Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege, and (ii) a
properly completed and executed Exercise Form. The Subscription Agent will not
honor a notice of guaranteed delivery if a properly completed and executed
Exercise Form and full payment for the Shares is not received by the
Subscription Agent by the close of business on the third business day after the
Expiration Date.
Within fourteen calendar days following the Expiration Date (the
"Confirmation Date"), a confirmation will be sent by the Subscription Agent to
each registered stockholder (or, if the Fund's Shares are held by Cede or any
other depository or nominee, to Cede or the depository or nominee), showing (i)
the number of Shares acquired pursuant to the Primary Subscription, (ii) the
number of Shares, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per Share and total purchase price for the Shares, and (iv) any
additional amount payable by the stockholder to the Fund or any excess to be
refunded by the Fund to the stockholder, in each case based on the Subscription
Price as determined on the Pricing Date. If any stockholder exercises the right
to acquire Shares pursuant to the Over-Subscription Privilege, any excess
payment which would otherwise be refunded to the stockholder will be applied by
the Fund toward payment for Shares acquired pursuant to exercise of the
Over-Subscription Privilege. Any additional payment required from a stockholder
must be received by the Subscription Agent within ten business days after the
Confirmation Date. Any excess payment to be refunded by the Fund to a
stockholder will be mailed by the Subscription Agent to the stockholder as
promptly as possible. All payments by a stockholder must be in U.S. dollars by
money order or check drawn on a bank located in the United States and payable to
The First Australia Prime Income Fund, Inc.
- 30 -
<PAGE>
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Shares purchased are subject to collection of
checks and actual payment pursuant to any notice of guaranteed delivery.
STOCKHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER
RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.
If a stockholder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of any
additional amounts due, the Fund reserves the right to take remedial action,
including without limitation, (i) applying any payment actually received by it
toward the purchase of the greatest number of Shares which could be acquired by
the holder upon exercise of the Primary Subscription and/or Over-Subscription
Privilege; (ii) allocating the Shares subject to subscription rights to one or
more other stockholders; and (iii) selling all or a portion of the Shares
deliverable upon exercise of subscription rights on the open market and applying
the proceeds to the amount owed.
NOTICE OF NAV DECLINE
The Fund, as required by the Commission's registration form, will
suspend the Offer until it amends this Prospectus if, subsequent to the date of
this Prospectus, the Fund's NAV declines more than 10% from its NAV as of that
date. Accordingly, the Fund will notify stockholders of the decline and thereby
permit them to cancel their exercise of Rights.
DELIVERY OF STOCK CERTIFICATES
Participants in the Fund's Dividend Reinvestment and Cash Purchase Plan
(the "Plan") will have any Shares that they acquire pursuant to the Offer
credited to their stockholder dividend reinvestment accounts in the Plan.
Stockholders whose Shares are held of record by Cede or by any other depository
or nominee on their behalf or their broker-dealers' behalf will have any Shares
that they acquire credited to the account of Cede or the other depository or
nominee. With respect to all other stockholders, stock certificates for all
Shares acquired will be mailed after payment for all the Shares subscribed for
has cleared, which may take up to fifteen days from the date of receipt of the
payment. Shares purchased pursuant to the Offer will be issued after the record
date for the monthly distribution declared in _______, 1998 and accordingly, the
Fund will not pay the monthly distribution with respect to the Shares.
FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
For federal income tax purposes, neither the receipt nor the exercise
of the Rights by stockholders will result in taxable income to holders of Common
Stock, and no loss will be realized if the Rights expire without exercise.
A stockholder's holding period for a Share acquired upon exercise of a
Right begins with the date of exercise. A stockholder's basis for determining
gain or loss upon the sale of a Share acquired upon the exercise of a Right will
be equal to the sum of the stockholder's basis in the Right, if any, and
- 31 -
<PAGE>
the Subscription Price. The stockholder's basis in the Right will be zero unless
either (i) the fair market value of the Right on the date of distribution is 15%
or more of the fair market value of the Shares with respect to which the Right
was distributed, or (ii) the stockholder elects, in the stockholder's federal
income tax return for the taxable year in which the Right is received, to
allocate part of the basis of the Shares to the Right. If either of clauses (i)
and (ii) is applicable, then if the Right is exercised, the stockholder will
allocate the stockholder's basis in the Shares with respect to which the Right
was distributed between the Shares and the Right in proportion to the fair
market values of each on the date of distribution. A stockholder's gain or loss
recognized upon a sale of a Share acquired upon the exercise of a Right will be
capital gain or loss (assuming the Share was held as a capital asset at the time
of sale) and will be long-term capital gain or loss if the Share was held at the
time of sale for more than one year.
The foregoing is a general summary of the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury regulations
presently in effect, and does not cover state or local taxes. The Code and
regulations are subject to change by legislative or administrative action.
Stockholders should consult their tax advisers regarding specific questions as
to federal, state or local taxes.
INVESTMENT CONSIDERATIONS
As a result of the terms of the Offer, stockholders who do not exercise their
Rights will, at the completion of the Offer, own a smaller proportional interest
in the Fund than they owned prior to the Offer. In addition, an immediate
dilution of the NAV per share will be experienced by all stockholders as a
result of the Offer irrespective of whether they exercise all or any portion of
their Rights, because the Subscription Price will be less than the current NAV
per share of the Fund's Common Stock and the number of shares outstanding after
the Offer will increase by a greater percentage than the increase in the size of
the Fund's assets. Although it is not possible to state precisely the amount of
dilution of the NAV per share, because it is not known at this time how many
Shares will be subscribed for or what the Subscription Price will be, the
dilution could be minimal or it could be substantial. In addition, the Offer may
have a dilutive impact on investment income available for distribution.
- 32 -
<PAGE>
USE OF PROCEEDS
If __________ Shares are sold at the Estimated Subscription Price of
$________, the net proceeds of the Offer are estimated to be approximately
$________, after deducting commissions and expenses payable by the Fund
estimated at approximately $_________. If the Fund, in its sole discretion,
increases the number of Shares subject to the Offer by 25% in order to satisfy
over-subscriptions, the additional net proceeds will be approximately
$_________. The Investment Manager and Investment Adviser anticipate that
investment of the net proceeds in Asian debt securities, in accordance with the
Fund's investment objective and policies, will take up to three months from
their receipt by the Fund, depending on market conditions and the availability
of appropriate securities. See "The Offer - Purpose of the Offer" and
"Investment Objective and Policies; Investment Restrictions."
DESCRIPTION OF COMMON STOCK
The Fund, which was incorporated under the laws of the State of
Maryland on March 14, 1986, is authorized to issue 400,000,000 shares of Common
Stock. Each share has equal voting, dividend, distribution and liquidation
rights. The shares outstanding and the Shares offered hereby, when issued and
paid for pursuant to the terms of the Offer, will be fully paid and
non-assessable. Shares of Common Stock are not redeemable and have no
preemptive, conversion or cumulative voting rights.
The number of shares of Common Stock outstanding as of July 31, 1998
was 194,744,328. The number of shares outstanding as of July 31, 1998 adjusted
to give effect to the Offer, assuming that all Rights and the Over-Subscription
Privilege are exercised and the applicable Shares issued, would be 275,887,798.
The Fund's shares are publicly held and listed and traded on the AMEX
and the PSE. The NAV of the Fund is determined on the last business day of each
week. The following table sets forth for the quarters indicated the highest and
lowest Friday (or other last business day of a week) closing prices on the AMEX
per share of Common Stock and the NAV per share and the premium or discount from
NAV on the date of each of the high and low market prices. The table also sets
forth the number of shares traded on the AMEX during the respective quarter.
- 33 -
<PAGE>
<TABLE>
<CAPTION>
NAV AMEX
Per Share on Market Price Per
Date of Share and Related Reported
Market Price Premium(+)/ AMEX
High and Low(1) Discount (-)(2)(3) Volume
-------------- ------------------ ------
Quarter Ended High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
January 31, 1996................... 9.35 9.10 9.56 (+3.71%) 9.13 (+0.27%) 8,086,200
April 30, 1996..................... 9.00 9.29 9.50 (+5.53%) 8.58 (-7.66%) 12,366,600
July 31, 1996...................... 9.41 9.47 8.75 (-7.01%) 8.38 (-11.58%) 17,832,400
October 31, 1996................... 9.88 9.45 8.88 (-10.17%) 8.63 (-8.73%) 11,149,200
January 31, 1997................... 10.32 9.38 9.13 (-11.58%) 8.81 (-6.05%) 15,343,800
April 30, 1997..................... 9.50 9.56 9.19 (-3.29%) 8.88 (-7.17%) 9,408,400
July 31, 1997...................... 9.42 9.35 9.38 (-0.48%) 9.13 (-2.41%) 9,781,600
October 31, 1997................... 9.44 8.85 9.38 (-0.69%) 8.13 (-8.19%) 15,609,300
January 31, 1998................... 8.80 7.86 8.13 (-7.67%) 7.25 (-7.76%) 16,513,700
April 30, 1998..................... 8.28 7.89 8.00 (-3.38%) 7.38 (-6.53%) 13.303,500
July 31, 1998...................... 7.81 7.02 7.06 (-9.57%) 6.75 (-3.85%) 14,740,800
- ----------
</TABLE>
(1) Based on the Fund's computations.
(2) Highest and lowest Friday (or other last business day of the week)
closing market price per share as reported on the AMEX.
(3) "Related Premium (+)/Discount (-)" represents the premium or discount
from NAV of the shares on the date of the respective high and low
Friday (or other last business day of the week) market price for the
respective quarter.
On ___________, 1998, the per share NAV was $________ and the share
market price was $________, representing a _______% discount from such NAV.
The Fund's shares have traded in the market above, at and below NAV
since the commencement of the Fund's operations. The Fund cannot determine the
reasons for the Fund's shares trading at a premium or discount to NAV, nor can
the Fund predict whether its shares will trade in the future at a premium or
discount to NAV, and if so, the level of any premium or discount. Shares of
closed-end investment companies frequently trade at a discount from NAV.
- 34 -
<PAGE>
THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the Investment Company Act. It commenced operations in April
1986 and was the first publicly offered United States registered investment
company organized to invest primarily in Australian debt securities. The Fund's
investment objective is current income through investment primarily in
Australian debt securities. The Fund may also achieve incidental capital
appreciation. In May 1998, the Fund's Common and Preferred stockholders approved
a series of proposals allowing the Fund, among other things, to (1) invest up to
35% of its assets in Asian debt securities; (2) invest in Asian debt securities
for which there is no established relevant market; (3) invest up to 15% of its
total assets in Asian debt securities rated, or considered by the Investment
Manager to be, below investment grade at the time of investment, and to reduce
the percentage of its investments in debt securities which are, or are
considered by the Investment Manager to be, rated AA or A quality; and (4)
utilize derivatives in furtherance of its investment objective and policies.
EXPERIENCE OF THE INVESTMENT MANAGER AND INVESTMENT ADVISER
GENERAL. The Fund's Investment Manager is EquitiLink International
Management Limited, an investment management company organized in Jersey,
Channel Islands. The Investment Manager manages, in accordance with the Fund's
stated investment objective, policies and limitations and subject to the
supervision of the Fund's Board of Directors, the Fund's investments and makes
investment decisions on behalf of the Fund, including the selection of, and
placing of orders with, broker-dealers to execute portfolio transactions on
behalf of the Fund and the making of investments in U.S. dollar-denominated
securities. The Investment Manager's affiliate, EquitiLink Australia Limited, an
Australian corporation, acts as the Fund's Investment Adviser, providing
portfolio recommendations to the Investment Manager with respect to Australian,
New Zealand and Asian debt securities. The Investment Manager and the Investment
Adviser also serve in these capacities for the First Asia Income Fund, a
closed-end unit Trust the units of which are listed on the Toronto Stock
Exchange, organized to invest primarily in debt securities of issuers in
Australia, New Zealand and other Asian countries; The First Australia Fund,
Inc., a non-diversified closed-end management investment company, the shares of
which are listed on the AMEX and the PSE, organized to invest primarily in
Australian listed equity securities, which commenced operations in 1985; and The
First Australia Prime Income Investment Company Limited, a closed-end management
investment company, the shares of which are listed on the Toronto Stock
Exchange, also organized to invest primarily in Australian debt securities,
which commenced operations in 1986. In addition, the Investment Manager and
Adviser provide management and advisory services to The First Commonwealth Fund,
Inc., a non-diversified, closed-end management investment company whose shares
are traded on the New York Stock Exchange, organized to invest in high-grade,
fixed income securities denominated in the currencies of Australia, Canada, New
Zealand and the United Kingdom. The Investment Adviser also manages eleven
Australian wholesale public unit trusts and two other closed-end management
investment companies, the shares of which are listed on the Australian Stock
Exchange Limited, as well as an open-end fund marketed in Taiwan and
institutional and private advisory accounts. The Investment Manager and the
Investment Adviser are
- 35 -
<PAGE>
registered with the Commission under the Investment Advisers Act of 1940. See
"Management of the Fund."
EXPERIENCE IN ASIA. The Investment Manager and Investment Adviser also
manage the First Asia Income Fund, which commenced operations in May 1997. The
Investment Adviser's professional staff collectively has many years of
experience managing investments in Asian markets including prior employment with
other investment management firms based in Hong Kong and Malaysia.
INVESTMENT OBJECTIVE AND POLICIES; INVESTMENT RESTRICTIONS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is current income through investment
primarily in Australian debt securities. The Fund may also achieve incidental
capital appreciation. The objective and the investment policies set forth in the
following four paragraphs and under the caption "Investment Restrictions" may
not be changed without the approval of the holders of a majority of the
outstanding shares of the Common Stock and the Preferred Stock, voting together
as a single class, as well as by the holders of a majority of the outstanding
shares of the Fund's Preferred Stock voting as a separate class without regard
to series. A majority vote, as defined by the Investment Company Act, means the
affirmative vote of the lesser of (i) 67% of the relevant shares represented at
a meeting at which more than 50% of the shares are represented, or (ii) more
than 50% of the relevant shares.
PORTFOLIO STRUCTURE
It is expected that normally at least 65% of the Fund's total assets
will be invested in Australian dollar denominated debt securities of Australian
banks, federal and state governmental entities and companies, and in Australian
dollar denominated global or Eurobonds, whether or not the issuer is domiciled
in Australia, which expose the Fund to the Australian interest rate structure
and which are traded by reference to similar debt securities of Australian
domiciled issuers. To achieve its investment objective, the Fund may invest the
balance of its total assets (1) in debt securities of Asian Country issuers,
including securities issued by Asian Country governmental entities, as well as
by banks, companies and other entities which are located in Asian Countries,
whether or not denominated in an Asian Country currency, (2) in debt securities
of other issuers, denominated in, or linked to, the currency of an Asian
Country, including securities issued by supranational issuers, such as The World
Bank and derivative debt securities that replicate, or substitute for, the
currency of an Asian Country, (3) in debt securities which are denominated in
New Zealand dollars of issuers, whether or not domiciled in New Zealand, and (4)
in U.S. debt securities. The maximum country exposure to any one Asian Country
is limited to 15% of the Fund's total assets and the maximum currency exposure
to any one Asian Country currency is limited to 10% of the Fund's total assets.
The Fund will invest only in debt securities for which there is an active
secondary market except that the Fund may invest up to 35% of its assets in
Asian debt securities for which there is no established relevant market.
- 36 -
<PAGE>
During periods when, in the Investment Manager's judgment, economic
conditions warrant a temporary defensive investment policy, the Fund may
temporarily invest up to 100% of its assets in U.S. debt securities. The Fund
will not invest in convertible debt securities.
It is the Fund's policy to limit its investments, as to at least 50% of
its total assets, to issuers or debt securities which are, at the time of
investment, rated AA or better by S&P, or Aa or better by Moody's, or which, in
the opinion of the Investment Manager, are of equivalent quality. In addition,
at least 65% of the Fund's investments must be rated, at the time of investment,
A- or better by S&P or A3 or better by Moody's or be, in the Investment
Manager's judgment, of equivalent quality. In order to accommodate investment in
Asian markets, Asian debt securities may be purchased which, at the time of
investment are rated by S&P or Moody's, or are judged by the Investment Manager,
to be the equivalent of at least B- by S&P or B3 by Moody's; provided, however,
that in no event may more than 15% of its total assets be invested in Asian debt
securities which, at the time of investment, are rated below investment grade of
BBB, but not less than B-, by S&P, or Baa, but not less than B3, by Moody's, or
which, in the opinion of the Investment Manager, are of equivalent quality, and
provided further; that with the approval of the Fund's Board of Directors, the
ratings of other recognized rating services may be used.
The Fund may enter into repurchase agreements with banks and
broker-dealers pursuant to which the Fund may acquire a security for a
relatively short period (usually no more than a week) subject to the obligations
of the seller to repurchase and the Fund to resell the security at a fixed time
and price. The Fund will enter into repurchase agreements only with parties who
meet creditworthiness standards approved by the Fund's Board of Directors, i.e.,
banks or broker-dealers which have been determined by the Fund's Investment
Manager to present no serious risk of becoming involved in bankruptcy
proceedings within the period contemplated by the repurchase transaction.
The Fund may, with respect to the Asian portion of its portfolio, use
derivatives to manage currency and interest rate risk and as a substitute for
physical securities. The Fund may also use derivatives with respect to its
Australian investments to manage interest rate risk through investing in
exchange traded interest rate derivatives. However, it will not use derivatives
to hedge Australian currency risk, except in connection with currency forward
contracts used in connection with the transfer of cash to the United States.
As a non-diversified company, there is no investment restriction on the
percentage of the Fund's assets that may be invested at any time in the
securities of any issuer. However, the Fund intends to limit its investments in
the securities of any issuer, except for securities issued or guaranteed as to
payment of principal and interest by Australian or New Zealand commonwealth or
state governments or their instrumentalities, to 5% of its assets at the time of
purchase. The Fund may invest without limitation in securities of Australian
governments or governmental entities and may invest up to 25% of its assets at
the time of purchase in New Zealand government securities. The Fund intends to
invest in a variety of debt securities, with differing issuers, maturities and
interest rates, and to comply with the diversification and other requirements of
the Code applicable to regulated investment companies so that the Fund will not
be subject to U.S. federal income taxes on its net investment income. See
"Taxation -- United States." The average U.S. dollar weighted maturity of the
Fund's portfolio is not expected to exceed 10 years.
- 37 -
<PAGE>
INVESTMENT RESTRICTIONS
The Fund may not:
1. Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position
(other than with respect to the use of derivatives).
3. (a) Issue senior securities, except (i) insofar as the Fund
may be deemed to have issued a senior security in connection
with any repurchase or securities lending agreement or any
borrowing agreement permitted by those investment restrictions
and (ii) that the Fund may issue one or more series of its
preferred stock, if permitted by the Articles; or (b) borrow
money or pledge its assets, except that the Fund may borrow on
an unsecured basis from banks for temporary or emergency
purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount
borrowed) and will not make additional investments while any
such borrowings are outstanding.
4. Buy or sell commodities, commodity contracts, real estate or
interests in real estate (other than mortgage-backed
securities or with respect to the use of derivatives).
5. Make loans (except that the Fund may purchase debt securities
whether or not publicly traded or privately placed or may
enter into repurchase and securities lending agreements
consistent with the Fund's investment policies).
6. Make investments for the purpose of exercising control or
management.
7. Act as an underwriter (except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of
securities in the Fund's investment portfolio),
8. Invest more than 25% of its total assets at the time of
purchase in any one industry (including banking) except that
the Fund will invest over 25% of its total assets in
securities issued or guaranteed, as to payment of principal
and interest, by Australian governments or governmental
entities. U.S. government securities are excluded from this
restriction.
- 38 -
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Shares involves certain risks and considerations not
typically associated with investing in the United States. The following
discusses risks and special considerations with respect to the Offer and with
respect to an investment in the Fund.
DILUTION -- NET ASSET VALUE AND NON-PARTICIPATION IN THE OFFER
As a result of the terms of the Offer, stockholders who do not fully
exercise their Rights will, at the completion of the Offer, own a smaller
proportional interest in the Fund than they owned prior to the Offer. In
addition, an immediate dilution of the NAV per share will be experienced by all
stockholders as a result of the Offer irrespective of whether they exercise all
or any portion of their Rights, because the Subscription Price will be less than
the then current NAV per share, and the number of shares outstanding after the
Offer will increase by a greater percentage than the increase in the size of the
Fund's assets. Although it is not possible to state precisely the amount of the
dilution of the NAV per share, because it is not known at this time how many
Shares will be subscribed for or what the Subscription Price will be, any
dilution could be minimal or it could be substantial. For example, if the
Subscription Price is $____, representing a price which is ____% of an assumed
NAV per Share of $____, assuming that all Rights are exercised and the Fund
increases the number of Shares subject to subscription by 25% in order to
satisfy over-subscriptions, the Fund's NAV per share would be reduced by
approximately $____ per share. If, on the other hand, the Subscription Price
represents a further discount to the Fund's NAV per share, the dilution would be
greater. For example, if the Subscription Price is $____, representing a price
which is only ____% of the NAV per share, assuming that all Rights are exercised
and the Fund increases the number of shares subject to subscription by 25% in
order to satisfy over-subscriptions, the Fund's NAV per share would be reduced
by approximately $____ per share. The foregoing examples assumed Subscription
Prices of $____ and $____, respectively. However, the actual Subscription Price
may be greater or less than the assumed Subscription Prices. The Offer may also
have a dilutive impact on investment income available for distribution.
CURRENT DISTRIBUTION RATE
In February 1989, the Fund began to pay regular monthly distributions
from net investment income which, commencing in September 1993, have been
supplemented by realized capital gains. The amount of monthly distributions has
been reduced from time to time when the previous distribution level could no
longer be sustained. For the current fiscal year, the distributions to date have
exceeded net investment income. To the extent total distributions for the year
exceed the Fund's net investment income, the difference will be deemed for
income tax purposes to have been distributed from realized capital gains or will
be treated as return of capital. Although the Fund anticipates that investment
of the proceeds in higher yielding Asian debt securities will enable the Fund to
realize earnings in excess of future distributions, stockholders are cautioned
that there can be no guarantee of future performance. The Fund's investment in
Asian debt securities involves risks and uncertainties so that actual results
may differ materially from those anticipated as a result of various factors. The
Fund undertakes no obligation to update or revise the disclosure in this
Prospectus with regard to the effect of investment in Asia on the
- 39 -
<PAGE>
Fund's distribution rate to reflect current events or circumstances after the
date of this Prospectus or to reflect the occurrence of unanticipated events.
The Board of Directors reviews the level of distributions on a continuing basis
at its quarterly Board meetings, with the next review scheduled to take place at
its meeting to be held in September 1998. The Shares issued in the Offer will
not be entitled to the distribution to be declared to stockholders of record on
__________, 1998 which is payable in ___________ 1998.
CURRENCY EXCHANGE RATE FLUCTUATIONS
It is expected that normally at least 65% of the Fund's total assets
will be invested in Australian dollar-denominated debt securities. The Fund may
also invest up to 35% of its assets in Asian debt securities, including, but not
limited to, debt securities which are denominated in, or linked to, the currency
of an Asian Country (see "Portfolio Securities - Asian Debt Securities").
Currency Exchange rates can fluctuate significantly over short periods and can
be subject to unpredictable changes based on a variety of factors including
political developments and currency controls by foreign governments. A change in
the value of the currency in which a portfolio security is denominated against
the U.S. dollar will generally result in a change in the U.S. dollar value of
the Fund's assets. If the exchange rate for a foreign currency declines, the
Fund's NAV would decline. In addition, although most of the Fund's income will
be received or realized primarily in foreign currencies, the Fund will be
required to compute and distribute its income in U.S. dollars. Therefore, for
example, if the exchange rate for a foreign currency declines after the Fund's
income has been accrued and translated into U.S. dollars, but before the income
has been received, the Fund could be required to liquidate portfolio securities
to make distributions. Similarly, if the exchange rate declines between the time
the Fund incurs expenses in U.S. dollars and the time the expenses are paid, the
amount of foreign currency required to be converted into U.S. dollars in order
to pay the expenses in U.S. dollars will be greater than the foreign currency
equivalent of the expenses at the time they were incurred.
Currency exchange rate fluctuations can decrease or eliminate income
available for distribution or conversely increase income available for
distribution. For example, in some situations, if certain currency exchange
losses exceed other net investment income for a taxable year, the Fund would not
be able to make ordinary income distributions and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to stockholders for U.S. federal
income tax purposes thus reducing stockholders' cost basis in their Fund shares,
or as capital gain, rather than as an ordinary income dividend.
The Investment Manager expects to hedge Asian foreign currency risks in
accordance with its views by engaging in foreign currency exchange transactions.
These may include buying and selling foreign currency options, foreign currency
futures, options on foreign currency futures and swap arrangements. Many of
these activities constitute "derivatives" transactions. See "Management of
Derivatives" below. There can be no assurance that the Fund will be able to do
this hedging successfully. Moreover, currency fluctuations against the U.S.
dollar in many Asian countries have been profound and negative in recent months
and there can be no assurance that these exchange rates will stabilize against
the U.S. dollar. The Fund will not seek to hedge against currency fluctuations
in the Australian dollar.
- 40 -
<PAGE>
Securities issued in Asian markets and denominated in an Asian country
currency are subject to fluctuation in value due to changes in the value of the
currency against the U.S. dollar. A decline in the value of an Asian currency
compared to the U.S. dollar will give rise to a capital loss to the Fund. Income
received from securities denominated in Asian currencies is also translated into
and distributed in U.S. dollars, so that a decline in the value of an Asian
currency will result in a decline in income to the Fund.
Investments made in the local currencies of an Asian country may not be
freely convertible into other currencies. Exchange rate fluctuations and local
currency devaluation could have a material effect on the value of these
securities. See "Appendix B--Asian Economic Data."
INTEREST RATE FLUCTUATIONS
Fluctuations in interest rates in the relevant bond markets can affect
the Fund's NAV and its distribution rate. The Fund's NAV is adversely affected
during periods of rising interest rates in those bond markets and is favorably
affected during periods when interest rates fall. Moreover, the Fund may
recognize capital loss, impacting its ability to supplement distributable
income, when bonds in the Fund's portfolio are sold or mature at a price which
is less than the Fund's cost.
In addition to fluctuation in interest rates, any overall downward
trend in interest rates can be expected to ultimately reduce available yields to
Fund stockholders, which could in turn result in a reduction in the amount of
the Fund's monthly distributions. Although interest rates in Australia and New
Zealand were substantially higher than interest rates in the U.S. at the
inception of the Fund in 1986, yields on Australian and New Zealand debt
securities have generally declined in recent years and are currently more
comparable to yields available in the U.S. Relatively high levels of interest
rates are currently available in Asian debt markets, but there can be no
assurance that these rates will continue to be obtainable.
Changes in the level of interest rates, in the relevant markets in
which the Fund invests will affect the market price of its portfolio securities
and the net asset value of the Fund at any given time. These changes are usually
more substantial in Asian countries where, for example, 100 to 200 basis point
interest rate changes are not uncommon. The level of interest rate risk will
vary from country to country depending on political and economic factors and
monetary policy. See "Appendix B--Asian Economic Data."
RISKS INVOLVED IN ASIAN INVESTMENT
In May 1998, the Fund's Common and Preferred stockholders approved a
series of proposals allowing the Fund, among other things, to (1) invest up to
35% of its assets in Asian debt securities; (2) invest in Asian debt securities
for which there is no established relevant market; (3) invest up to 15% of its
total assets in Asian debt securities rated, or considered by the Investment
Manager to be, below investment grade at the time of investment, and to reduce
the percentage of its investments in debt securities which are, or are
considered by the Investment Manager to be, rated AA or A quality; and (4)
utilize derivatives in furtherance of its investment objective and policies.
Investment in Asian debt markets will expose the Fund to greater foreign
exchange risk, interest rate risk, credit risk, political and economic risk
("event risk") and liquidity risk than would be the case if the Fund invested
only in Australian and New Zealand securities.
- 41 -
<PAGE>
The following summarizes the main risks involved in investing in Asian
bond and short term money market securities relative to similar types of
securities in Australia and the U.S. In managing the Fund, the Investment
Manager and Investment Adviser will manage all risks in accordance with their
stated investment guidelines.
Credit Risk. The proposals approved by Common and Preferred
stockholders in May 1998 permit the Fund to invest up to 15% of its total assets
in Asian debt securities which, at the time of investment, are rated below
investment grade or, if unrated, are in the opinion of the Investment Manager,
of equivalent quality. Among other things, investment in securities which are
rated below investment grade introduces an element of speculation, requires
skilled credit analysis and reduces the overall credit quality of the Fund's
portfolio.
Investments in securities rated below investment grade are subject to
greater market fluctuations and risk of loss of income and principal than
investments in securities with investment grade credit ratings. The former will
generally provide higher yields due to the higher premia now required by
investors for taking the associated credit risk.
Investment in debt securities expose the Fund to credit risk (that is,
the risk of default on interest and principal payments). Credit risk is
influenced by changes in general economic and political conditions and changes
in the financial condition of the issuers. During periods of economic downturn
or rising interest rates, issuers of securities with a low credit rating may
experience financial weakness that could affect their ability to make payments
of interest and principal.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the value and liquidity of securities
with low credit ratings, especially in markets characterized by a low volume of
trading.
Unrated securities. Under the proposal, the Fund will be permitted to
invest in unrated debt securities. Unrated securities, while not necessarily of
lower quality than rated securities, generally do not have a broad market.
Before purchasing an unrated security, the Investment Manager and Investment
Adviser intend to analyze the creditworthiness of the issuer of the security and
of any financial institution or other party responsible for payments on the
security in order to assign a rating to the security.
Below-investment grade securities. Ratings of debt securities represent
the rating agency's opinion regarding their quality and are not a guarantee of
quality. Rating agencies attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Because rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, the Investment Manager and Investment Adviser
will continuously monitor the issuers of securities held to determine whether
the issuers have sufficient cash flows and profits to meet principal and
interest payments.
The achievement of the Fund's investment objective will be more
dependent on the Investment Manager or the Investment Adviser's own credit
analysis than might be the case for a fund which invests in higher quality
bonds. The Fund may retain a security the rating of which has been changed. The
market
- 42 -
<PAGE>
values of lower quality debt securities tend to reflect individual developments
of the issuer to a greater extent than do higher quality securities, which react
primarily to fluctuations in the general level of interest rates.
Lower quality debt securities tend to be highly leveraged. Their
issuers may also not have available to them traditional methods of financing.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During these periods, issuers may not have
sufficient revenue to meet their interest payment obligations. An issuer's
ability to service debt obligations may also be adversely affected by specific
developments affecting the issuer, such as the issuer's inability to meet
specific projected business forecasts or the unavailability of additional
financing. Similarly, certain emerging market governments that issue lower
quality debt securities are among the largest debtors to commercial banks,
foreign governments and supernational organizations such as the World Bank, and
may not be able or willing to make principal and/or interest repayments as they
come due. The risk of loss due to default by the issuer is significantly greater
for the holders of lower quality securities because these securities are
generally unsecured and are often subordinated to higher ranking creditors of
the issuer.
Lower quality debt securities occasionally have call or buy-back
features that would permit an issuer to call or repurchase the security from the
holder. The Investment Manager and Investment Adviser anticipate that these
securities could be sold only to a limited number of dealers or institutional
investors as there may not be an established retail secondary market for many of
these securities, or where there is a market, the securities may not be easily
tradable.
The Fund may also incur additional expense to the extent that it is
required to seek recovery on a default in the payment of principal or interest
on its portfolio holdings, and the Fund may have limited legal recourse in the
event of a default. Debt securities issued by governments in emerging Asian
markets can differ from debt obligations issued by private entities in that
remedies for defaults generally must be pursued in the courts of the defaulting
government, and legal recourse may be diminished. Political conditions, in terms
of a government's willingness to meet the terms of its debt obligations, are
also of considerable significance. There can be no assurance that the holders of
commercial bank debt may not contest payments to the holders of debt securities
issued by governments in the event of default by the governments under
commercial bank loan agreements.
The Investment Manager and Investment Adviser will attempt to minimize
the speculative risks associated with investments in lower quality securities
through credit analysis and by carefully monitoring such current trends as
interest rates and political developments.
Management of Credit Risk. At the upper end of the credit rating
spectrum, recognized international ratings agencies such as S&P and Moody's
provide extensive risk credit analysis for investors. However, in emerging
markets such as Asia, where issues are often unrated or are at the lower end of
the credit risk spectrum, the Investment Manager and Investment Adviser believe
that opportunities exist for skilled analysts to add value through extensive
company research and detailed credit assessment. They have advised the Fund that
the process of credit assessment in much of Asia's developing debt markets is
similar to that undertaken when considering an equity investment, rather than a
debt purchase. In debt investing, the Investment Manager and Investment Adviser
determine the likelihood of default (by assessing debt to equity
- 43 -
<PAGE>
levels, interest coverage, etc.), and then compare that to the market price
offered for that issuer. As with stock investing, qualitative factors must be
evaluated, including management capability, in order to assess the likelihood
that the issuer will remain in business for the life of the security (i.e., to
make interest payments plus return of principal).
The Investment Manager and Investment Adviser also consider external
credit assessments available from rating agencies such as S&P and Moody's, as
well as any reports on the issuer which may be available from brokers or other
sources. A chart showing the current S&P and Moody's credit ratings on long-term
foreign sovereign debt for the Asian countries in which the Fund may invest is
included in Appendix B.
Once a company has been fully assessed, the Investment Manager and
Investment Adviser determine whether the return on that company's security
appears adequate to compensate for the risks of investment.
Political and Economic Risk. The Fund's investments could in the future
be adversely affected by any increase in taxes or by political, economic or
diplomatic developments in the Asian Countries as well as Australia and New
Zealand. Moreover, accounting, auditing and financial reporting standards and
other regulatory practices and requirements vary from those applicable to
entities subject to regulation in the United States.
Securities of foreign issuers involve different, and sometimes greater,
risks than securities of U.S. and Australian issuers. Asian economies are
considered to be more politically volatile than the traditional Western style
democracies. Investments in securities of issuers in Asian countries involve
political risk, including in some countries, the possibility of expropriation,
confiscatory taxation or nationalization of assets, and the establishment of
foreign exchange controls. Central authorities also tend to exercise a high
degree of control over the economies and in many cases have ownership over core
productive assets.
With their strong reliance on international trade, the Asian economies
tend to be sensitive both to economic changes in their own region and to changes
affecting their major trading partners. These include changes in growth,
inflation, foreign exchange rates, current account positions, government
policies, taxation and tariffs. See "Appendix B--Asian Economic Data."
Tax Risk. Income earned on investments in Asian countries may be
subject to applicable withholding taxes and other taxes imposed by the
governments of these countries. There can be no assurance that foreign tax laws
will not be changed in a manner which adversely affects foreign investors.
The tax code, assessment, collection and crediting systems of some
Asian countries are currently under review. Local officials are given
considerable leverage and discretion in fixing the level and amount of tax to
which an investment may be subject.
Legal and Accounting Risk. The legal systems in many Asian countries
are less developed than those in more developed countries, with the
administration of laws and regulations often subject to considerable discretion.
While the development of the legal systems is a positive step, there is a risk
that foreign investors will be adversely affected by new laws or changes to
existing laws.
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<PAGE>
Accounting and auditing standards applied in certain Asian countries
frequently do not conform with the accepted international standards used in
Australia and the U.S. In some cases accounting policies, for example the use of
the constant purchasing power method, can have a distortive effect. Also,
substantially less financial information is generally publicly available about
issuers in Asian countries and, where available, may not be independently
verifiable.
Liquidity Risk. While the Fund may ordinarily invest only in debt
securities for which there is an active secondary market, in order to give it
the flexibility to invest in Asian debt securities, the Fund may invest up to
35% of its assets in Asian debt securities for which there is no established
relevant market.
The securities markets that exist in emerging Asian countries are
substantially smaller, less developed, less liquid and more volatile than the
securities markets of the United States and other more developed countries.
In some Asian countries, there is no established secondary market for
securities. Therefore, liquidity in these countries is generally low and
transaction costs high. Reduced liquidity often creates higher volatility, as
well as difficulties in obtaining accurate market quotations for financial
reporting purposes and for calculating net asset values, and sometimes also an
inability to buy and sell securities. Market quotations on many securities may
only by available from a limited number of dealers and may not necessarily
represent firm bids from those dealers or prices for actual sales.
Timing. When an investment is made into a new asset class, such as
Asian debt securities, its timing can be significant in terms of performance.
For example, if an investment is made in a new asset class just prior to the
advent of very favorable market conditions, the investment performance will be
better than it would have been if the investment had been made two years earlier
in a static market. Conversely, if an investment is made in a new asset class
just prior to a significant downturn in that market, performance will be worse
than it would have been had the investment been made later. It is not possible
to predict major market events and, therefore, investment into volatile markets,
such as Asia, presents the added risk of timing.
The experience of the First Asia Income Fund is illustrative. The First
Asia Income Fund ("FAI.UN") is a closed-end investment trust managed by the
Investment Manager and advised by the Investment Adviser. FAI.UN was listed on
the Toronto Stock Exchange in May 1997. Its investment objective is to maximize
current income through investment in debt securities of issuers in Australia,
New Zealand and selected Asian countries. Over a period of months following its
inception, FAI.UN took increasingly defensive positions in Australian dollar,
U.S. dollar and Canadian dollar denominated securities as the deteriorating
Asian economic conditions were becoming clear. Nonetheless, as a result of its
investments that were made in the Asian markets just prior to a downturn, the
performance of FAI.UN was worse than it might have been had the investments been
made at a different time. In the opinion of the Investment Manager and the
Investment Adviser, since early 1998, the economic conditions in Asia have
presented investment opportunities. Accordingly, FAI.UN has increased its
exposure to Asian currencies.
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<PAGE>
USE OF DERIVATIVES. Consistent with its investment objective, the Fund
may invest in a broad array of financial instruments and securities in which the
value of the instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an interest rate or
a foreign currency ("derivatives"). Derivatives are most often used to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position directly
(often because it is more efficient or less costly than direct investment).
There is no guarantee that these results can be achieved through the use of
derivatives and any success in their use depends on a variety of factors
including the Investment Manager's and Investment Adviser's ability to predict
correctly the direction of interest rates, securities prices, currency exchange
rates and other factors.
The primary risk of derivatives is the same as the risk of the
underlying asset, namely that the value of the underlying asset may increase or
decrease. Adverse movements in the value of the underlying asset can expose the
Fund to losses. In addition, risks in the use of derivatives include:
. an imperfect correlation between the price of derivatives and the
movement of the securities prices, interest rates or currency
exchange rates being hedged;
. the possible absence of a liquid secondary market for any
particular derivative at any time;
. the potential loss if the counterparty to the transaction does not
perform as promised;
. the possible need to defer closing out certain positions to avoid
adverse tax consequences;
. the risk that the financial intermediary "manufacturing" the
derivative, being the most active market maker and offering the
best price for repurchase, will not continue to create a credible
market in the derivative;
. because derivatives are "manufactured" by financial institutions
for the most part, the risk that the Fund may develop a substantial
exposure to financial institution counterparties; and
. the risk that a full and complete appreciation of the complexity of
derivatives and how future value is affected by various factors
including changing interest rates, exchange rates and credit
quality is not attained.
The types of derivatives used by the Fund and the techniques employed
may change over time as new derivatives and strategies are developed or
regulatory changes occur.
- 46 -
<PAGE>
PREFERRED STOCK. The leverage obtained through the outstanding
Preferred Stock, since its issuance in January 1989, has generally provided
holders of Common Stock with a higher yield than they would otherwise have
received. Under such conditions, the benefit of leverage to holders of Common
Stock will be reduced and the Fund's leveraged capital structure could result in
a lower rate of return to holders of Common Stock than if the Fund were not
leveraged. The Fund has the authority to redeem the Preferred Stock for any
reason and may redeem all or part of the Preferred Stock if it anticipates that
the Fund's leveraged capital structure will result in a lower rate of return to
holders of the Common Stock than that obtainable if the Common Stock were
unleveraged for any significant amount of time. The Fund may also need to redeem
all or a portion of the Preferred Stock to the extent required by the Investment
Company Act, the terms of the Preferred Stock or by rating agencies rating the
Preferred Stock. The leveraging of the Common Stock would be eliminated during
any period that Preferred Stock is not outstanding. See "Financial Highlights --
Senior Securities." Because the Investment Manager's and the Investment
Adviser's fees are based on the average net assets of the Fund which include the
Preferred Stock, the Investment Manager and Investment Adviser have benefited
from the Fund's determination not to redeem the Preferred Stock.
YEAR 2000 RISK. Many existing computer programs may not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." Like other
investment companies, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the service providers
to the Fund do not take adequate steps to address the Year 2000 Problem prior to
January 1, 2000. The problem may also particularly impact the Fund as it seeks
to implement its new Asian debt securities investment policy. This impact will
depend upon the degree of technological sophistication of the issuers of
securities and the degree of due diligence they are applying to the Year 2000
Problem. The Fund is unable to predict what impact, if any, the Year 2000
Problem will have on the issuers of securities in which it invests.
NET ASSET VALUE DISCOUNT. Shares of closed-end investment companies
frequently trade at a discount from NAV. This characteristic is a risk separate
and distinct from the risk that NAV will decrease. The Fund's shares have
frequently traded at prices below NAV since the commencement of the Fund's
operations. In the twelve months ended July 31, 1998, the Fund's shares have
traded in the market at an average discount to NAV of 5.05%. The Fund cannot
predict whether its shares in the future will trade at, below or above NAV. The
risk that shares of a closed-end fund might trade at a discount is more
significant for investors who wish to sell their shares in a relatively short
period of time. For those investors, realization of gain or loss on their
investment is likely to be more dependent upon the existence of a premium or
discount than upon portfolio performance.
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<PAGE>
NON-DIVERSIFIED STATUS. The Fund is classified as a "non-diversified"
investment company under the Investment Company Act, which means that the Fund
is not limited by the Investment Company Act as to the proportion of its assets
that may be invested in the securities of a single issuer. As a non-diversified
investment company, the Fund may invest a greater proportion of its assets in
the obligations of a smaller number of issuers and, as a result, will be subject
to greater risk with respect to its portfolio securities. Although, with respect
to 50% of its assets, the Fund must diversify its holdings in order to be
treated as a regulated investment company under the provisions of the Code, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence than would be the case if it had elected to diversify its holdings
sufficiently to be classified as a "diversified" investment company under the
Investment Company Act. See "Investment Objective and Policies; Investment
Restrictions" and "Taxation -- United States."
TAX CONSIDERATIONS. Subject to certain limitations imposed by the Code,
foreign taxes withheld from distributions or otherwise paid by the Fund may be
creditable or deductible by U.S. stockholders for U.S. income tax purposes, if
the Fund is eligible to and makes an election to treat the stockholders as
having paid those taxes for U.S. federal income tax purposes. No assurance can
be given that the Fund will be eligible to make this election each year but it
intends to do so if it is eligible. If the election is made, the foreign
withholding taxes paid by the Fund will be includable in the U.S. federal
taxable income of stockholders. Non-U.S. investors may not be able to credit or
deduct the foreign taxes, but they may be deemed to have additional income from
the Fund, equal to their share of the foreign taxes, that is subject to the U.S.
withholding tax. Investors should review carefully the information discussed
under the heading "Taxation" and should discuss with their tax advisers the
specific tax consequences of investing in the Fund.
ARTICLES OF AMENDMENT AND RESTATEMENT AND BY-LAW PROVISIONS. The Fund
presently has provisions in its Articles that could have the effect of limiting
(i) the ability of other entities or persons to acquire control of the Fund,
(ii) the Fund's freedom to engage in certain transactions or (iii) the ability
of the Fund's Directors or stockholders to amend the Articles or effect changes
in the Fund's management. The By-Laws provide for a staggered election of those
Directors who are elected by the holders of Common Stock, with such Directors
divided into three classes, each having a term of three years. Accordingly, only
those Directors in one class may be changed in any one year and it would require
two years to change a majority of the Board of Directors. This system of
electing Directors may have the effect of maintaining the continuity of
management and, thus, make it more difficult for the Fund's stockholders to
change the majority of Directors. Other provisions require the approval of
holders of 75% of the outstanding shares of the Common and Preferred Stock
voting both together as a single class and separately as to each class to
approve certain transactions including certain mergers, asset dispositions and
conversion of the Fund to open-end status. The foregoing provisions may be
regarded as "anti-takeover" provisions and may have the effect of depriving
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices. See "Capital Stock -- Common Stock" and "Certain Provisions of
the Articles of Amendment and Restatement and By-Laws." The Fund's Articles
authorize the Fund, by action of its Board of
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<PAGE>
Directors, to issue up to 100,000,000 shares of Preferred Stock in one or more
series and from time to time. See "Risk Factors and Special Considerations --
Preferred Stock."
PORTFOLIO COMPOSITION
The following sets forth certain information with respect to the
composition of the Fund's investment portfolio in terms of percentages of total
market value (excluding $___________ held in U.S. and Australian
dollar-denominated short-term investments) as of April 30, 1998.
<TABLE>
<CAPTION>
% of Total
Market Value Market Value
Number in U.S. of Long-Term
of Issues Dollars Investments
--------- ------- -----------
<S> <C> <C> <C>
Australia and New Zealand
government securities....................... $_________ ______%
Australian state and
semi-government securities.................. $_________ ______%
Australia and New Zealand
corporate bonds............................. $_________ ______%
Eurobonds....................................... $_________ ______%
--- --------------- --
Total long-term investments................ $_________ 100%
=== ============== ===
</TABLE>
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<PAGE>
RATINGS OF SECURITIES HELD IN THE PORTFOLIO
% of Total Market Value
of Long-Term Portfolio
----------------------
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
AND/OR STANDARD & POOR'S RATING GROUP, A
DIVISION OF MCGRAW-HILL, INC. ("S&P")*
Aaa/AAA by Moody's or S&P................... __%
Aa/AA By Moody's or S&P..................... __%
A/A by Moody's or S&P....................... __$
----
Total Portfolio Rated by Moody's
and/or S&P 100%
----
- ------------------
* Reflects the lower of the Moody's or S&P rating
COMPARISON OF FUND TOTAL RETURNS TO THE CBBI
IN AUSTRALIAN DOLLARS
The following chart sets forth a comparison of the total return based
on NAV of the Fund to that of the Commonwealth Bank All Series, All Maturities,
Accumulation Bond Index (the "CBBI") in Australian Dollars. The CBBI reflects
the total return on all outstanding Australian government bonds, adjusted to
reflect capital gains and losses and reinvestment of income. The Fund's
performance reflects the reinvestment of dividends at the first net asset value
calculated after distribution. In addition, for comparative purposes, the
performance of the CBBI, as presented below, has been reduced to reflect the
imposition of the 10% withholding tax levied by Australia on interest income
derived from Australian sources by non-resident investors in order to account
for the same 10% tax levied on the Fund's Australian source income. While there
are several differences between both the composition and the performance of the
CBBI and the Fund's portfolio of investments, the Investment Adviser believes
that this comparison is the most representative available method of
demonstrating the correlation of the Fund's performance with that of Australian
government bonds.
- 50 -
<PAGE>
Among the factors distinguishing the CBBI from the Fund are the
following: (i) the CBBI is an unmanaged index that bears none of the costs
associated with the portfolio management activities of an investment company
such as the Fund and, therefore, the performance of the CBBI, as measured
against the after-expenses performance of the Fund, is favorably affected; (ii)
the CBBI is made up entirely of Australian government bonds, while the Fund also
invests in Australian semi-government bonds, Australian corporate bonds, and
Eurobonds; (iii) Australian semi-government bonds, Australian corporate bonds,
and Eurobonds, which, over the life of the Fund, have represented between 28%
and 77% of the total assets of the Fund (on a quarterly basis), generally yield
slightly higher returns than those of Australian government bonds and therefore
the performance of the Fund, as measured against the CBBI, is favorably
affected; and (iv) while the CBBI is adjusted to reflect the imposition of the
10% withholding tax levied on the Fund's Australian source income, the portion
of the Fund's portfolio held in Eurobonds, which, since April, 1993, has
averaged approximately 24% on a quarterly basis, is not subject to such tax and
therefore the performance of the Fund, as measured against the adjusted CBBI, is
favorably affected.
[Line Graph]
- -----------
(1) Fund total return measured in Australian dollars for the period from
the Fund's inception on April 24, 1986 through April 30, 1998 after
expenses and fees is _____% or ____% per annum and before expenses and
fees is _____% or ____% per annum. Past performance is no guarantee of
future results. The Fund's total return as reflected in the chart is
based on the Fund's NAV rather than on market value. The Fund's shares
have traded in the market above, at and below NAV since the
commencement of the Fund's operations.
(2) The "Before Expenses and Fees" calculation is derived by adding back
the operating expenses of the Fund, including those relating to the
Preferred Stock, which are subtracted in the "After Expenses and Fees"
calculation. The one-time offering and underwriting expenses associated
with each of the Preferred Stock issues and the prior rights offerings,
which are subtracted in the "After Expenses and Fees" calculation, have
also been added back.
(3) CBBI total return, which is shown in the chart after adjustment to
reflect the imposition of the 10% withholding tax levied by Australia
in order to account for the 10% tax levied on that portion of the
Fund's income that is Australian source income, for the period from
April 24, 1986 through April 30, 1998 is _____% or ____% per annum.
Before such adjustment, CBBI total return for the same period is _____%
or ____% per annum.
For further information, reference should be made to "Financial
Statements" and "Appendix A -- Australian Economy."
PORTFOLIO SECURITIES
Description of Debt Securities
The types of debt securities in which the Fund is permitted to invest
include those described below. The list is not exclusive, but is indicative of
the kinds of securities which the Fund's investment objectives, policies and
restrictions permit it to buy.
- 51 -
<PAGE>
AUSTRALIAN SECURITIES
Commercial Banks. The Fund is permitted to invest in bills of exchange,
certificates of deposit and promissory notes issued or guaranteed, as to payment
of principal and interest, by Australian commercial banks. Australian commercial
banks are generally comparable to U.S. banks and are subject to regulation by
Australian government authorities. The Investment Adviser does not believe that
there are any special risks associated with these securities arising out of the
fact that they are issued by banks. Bills of exchange are negotiable
instruments, issued to finance current transactions, which generally mature
within six months and which are accepted or endorsed by a commercial bank and
thus carry the bank's credit. Certificates of deposit are negotiable instruments
issued by commercial banks with maturities ranging from a few days to several
years. Promissory notes are negotiable instruments endorsed and therefore
guaranteed by a commercial bank or backed by a bank letter of credit as to
payment of principal and interest. Maturities generally range up to 180 days.
Bank bills, certificates of deposit and promissory notes are usually issued at a
discount from face value and are traded by dealers in an active public secondary
market.
Governmental Entities. The Fund is permitted to invest in Federal
Commonwealth of Australia (the "Commonwealth") government bonds and treasury
notes and state government and semi-government bonds and notes. Commonwealth
government bonds and treasury notes represent the obligations of the
Commonwealth and are sold by the Reserve Bank of Australia (the central bank)
through public tenders. Bonds have maturities up to 15 years while notes are
issued in maturities of 13 and 26 weeks. The Commonwealth also guarantees as to
payment of principal and interest similar debt obligations issued by its
instrumentalities. State government and semi-government bonds and notes are
issued by various states and state instrumentalities and, in the case of state
instrumentalities, are guaranteed by the applicable state government. Maturities
range from less than one year to 15 years. Australian federal and state
government debt securities are frequently listed on the Australian Stock
Exchange Limited but most trading is by dealers in an active public secondary
market.
Companies. The Fund is permitted to invest in publicly-traded notes and
debentures or bills of exchange issued or guaranteed as to the payment of
principal and interest by Australian companies, whether or not guaranteed or
backed by a commercial bank. These securities have maturities generally ranging
from less than one year to five years and are traded by dealers in an active
public secondary market.
Mortgage-Backed Securities. The Fund is permitted to invest in
Australian mortgage-backed securities, which represent part ownership by the
Fund in a pool of mortgage loans. These loans are made by private lenders and
may have guarantees from Australian federal and state governmental entities,
companies and agencies. The securities would have to satisfy the Fund's general
credit criteria to qualify for purchase. Characteristics of several of the major
mortgage-backed securities are summarized below:
FANMACs: FANMAC securities are securities issued by a trustee against
housing loans made through the New South Wales Department of Housing and consist
of a series of closed trusts or pools. The mortgage manager is the First
Australian National Mortgage Acceptance Corporation Ltd.
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<PAGE>
("FANMAC"). FANMAC is owned 26% by the Government of the State of New South
Wales with the remainder owned by other institutions. The Government of the
State of New South Wales has provided the FANMAC Trust with a guarantee as to
availability of funds to meet payment. The securities have been rated by
Australian Ratings Pty. Ltd. ("Australia Ratings") and S&P. FANMAC securities
are subject to a call provision under which borrowers (mortgagors) can repay
early and the investors in a particular pool can be repaid on a pro rata basis.
NMMC AUSSIE MACs and National Mortgage Market Bonds: National Mortgage
Market Corporation Ltd. ("NMMC") has issued both AUSSIE MACs, which are
medium-term bearer securities, and National Mortgage Market Bonds. NMMC is a
private company which is 26% owned by the Government of the State of Victoria
and 74% by private institutions. Both AUSSIE MACs and National Mortgage Market
Bonds are rated by Australian Ratings.
MTCs: Mortgage Trust Certificates ("MTCs") are securities issued
against specific mortgages by a trustee and are similar to "pass through"
certificates. MTCs are issued on a continuous basis, insured by Australian
insurance companies against both mortgage default and an early call, and rated
by Australian Ratings.
MMSs and ANNIE MAEs: MMSs are mortgage-backed securities issued by
MGICA Securities Ltd., a wholly-owned subsidiary of AMP Society Ltd., an
Australian insurance company. ANNIE MAEs are securities issued by Australian
National Mortgage Pool Agency Ltd., an affiliate of Bank of America. Both MMSs
and ANNIE MAEs are issued against pools of mortgages and are rated by Australian
Ratings.
Other Debt Securities including Australian dollar denominated global or
Eurobonds. Subject to its investment policy of investing at least 65% of its
assets in Australian dollar-denominated debt securities of Australian issuers,
the Fund is permitted to invest in Australian dollar-denominated debt
securities, similar in nature to those described above, regardless of the
domicile of the issuers. Thus, the Fund is permitted to invest in Australian
dollar denominated global or Eurobonds that expose the Fund to the Australian
interest rate structure and which are traded by reference to similar debt
securities of Australian domiciled issuers. The latter securities are usually
issued in the Eurodollar market by multi-national banks and companies which may
have operations in Australia or New Zealand.
ASIAN DEBT SECURITIES
"Asian debt securities" includes (1) debt securities issued by entities
located in the following countries: China, Hong Kong, India, Indonesia, Japan,
Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand (each an
"Asian Country" or together "Asian Countries"); as well as (2) debt securities
of other issuers which are denominated in, or linked to, the currency of an
Asian Country. In addition, "Asian debt securities" may include debt securities
issued by entities located in other countries on the Asian continent, or which
are denominated in, or linked to, the currency of any other country on the Asian
continent provided the country is approved for investment by the Board of
Directors upon the recommendation of the Investment Manager and the Investment
Adviser.
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<PAGE>
The Fund is permitted to invest in physical securities denominated in
Asian local currency including government bonds, bills and convertible notes.
Subject to its investment policies, the Fund may invest no more than 15% of its
total assets in Asian debt securities, including local currency physical
securities, which, at the time of investment, are rated below investment grade
of BBB, but not less than B-, by S&P, or Baa, but not less than B3, by Moody's,
or which, in the opinion of the Investment Manager, are of equivalent quality.
Debt securities rated below investment grade are sometimes referred to as "junk
bonds." For information regarding the risks of investing in securities rated
below investment grade, see "Risk Factors and Special Considerations--Risks
Involved in Asian Investment--Credit Risk."
Asian Yankee Bonds. The Fund is also permitted to invest in Asian
Yankee bonds in order to gain exposure to certain Asian debt markets without
exposing the fund to Asian currency risk. Asian Yankee bonds are U.S.
dollar-denominated debt securities issued by obligors located in Asian
countries. The bonds may be issued in the United States and may be registered
under U.S. securities law. Asian Yankee bonds, which are only available in the
United States, may be purchased from brokers operating in the United States, or
may be purchased outside the United States through offices located outside the
United States of brokers doing business in the United States. Asian Yankee bonds
are subject to credit risk relating primarily to the issuer of the bond and
liquidity risk relating to the issuer's ability to maintain a sufficiently
liquid market for the specific issue. The bonds are also affected by movements
in U.S. interest rates.
Derivative Securities. The Fund can use derivatives with respect to its
Australian fixed income securities to modify interest rate risk and adjust the
Fund's duration or its positioning along the yield curve. With respect to its
Asian debt securities, the Fund will invest in derivatives for two main
purposes: (1) to modify interest rate risk and adjust currency risk within the
portfolio, and (2) to enable the Fund to replicate or substitute for a
particular security in order to gain access to a particular Asian market or
security, where either the physical security is too expensive, or there is an
insufficient supply of the particular security. In general, derivatives will not
be utilized to leverage the Fund.
By directly investing into Asia, the Fund will take on exposure to the
currencies of the countries in which it holds securities. The Fund will seek to
manage currency risk when the perceived outlook for a particular currency is for
depreciation against other currencies. The most effective way of doing this is
through the use of currency forwards (and occasionally options), which provide
an efficient means of implementing currency strategies. Also, investment in
Asian Yankee bonds involves exposure to both fluctuations in U.S. interest rates
and the credit standing of a particular Asian issuer. There may be times when
the Fund wishes to reduce the U.S. interest rate exposure embedded in Asian
Yankee bonds. This can be done by selling U.S. Treasury Bond futures.
Investment in Asian fixed income securities may at certain times be
more efficiently achieved using derivative securities to replicate physical
securities. These types of derivatives carry identical market price risks to the
equivalent physical securities but provide a number of transactional benefits.
For example, by using derivatives, the Fund may be able to implement investment
decisions at lower costs, increase the after-tax yield, obtain prices that are
not available in the underlying cash market, or settle in U.S. dollars. In less
developed markets, liquidity and credit quality can be enhanced and
- 54 -
<PAGE>
transaction costs reduced by using derivatives rather than the underlying
securities. This is due to the fact that the investor assumes the lower
counterparty risk of the issuer of the derivatives (for example, an
international bank rated A- or better), rather than that of a (local currency)
domestic issuer. In certain circumstances, due to lack of available direct
investment opportunity or government regulations, the only means of gaining
exposure to particular Asian countries is through derivatives.
The derivatives used for adjusting currency exposures or replicating
underlying securities are usually over-the-counter ("OTC") securities. OTC
securities carry credit risk associated with the counterparty institution. See
"Risk Factors and Special Considerations--Use of Derivatives." To manage this
risk, the Fund will only use counterparty institutions rated A- or better by
recognized international ratings agencies. Only up to 5% of total assets may be
put at risk in derivatives transactions with any single counterparty (aggregate
interest rate and currency derivatives exposure). A maximum of 10% of total
assets may be at risk in currency-linked notes and a maximum of 2.5% of total
assets may be at risk to any single counterparty in currency forwards. All
currency forwards must be settled only in U.S. dollars.
The Fund will only engage in exchange-traded derivatives transactions
on regulated derivative exchanges. A maximum of 35% of total assets may be at
risk in exchange-traded derivatives. For derivatives traded on the Sydney
Futures Exchange, the maximum gross exposure (long positions plus short
positions) will be 20% of total assets and the maximum net exposure (long
positions minus short positions) will be 15% of total assets. A maximum of 20%
of total assets may be at risk in derivatives traded on the Chicago Board of
Trade. A maximum of 5% of total assets, excluding Japanese Government Bond
("JGB") futures, may be at risk in derivatives traded on any one Asian futures
exchange. A maximum of 7% of total assets may be at risk in JGB futures
contracts (traded on Singapore International Monetary Exchange and the Tokyo
Stock Exchange). The Fund will only use the exchange-traded (as opposed to
over-the-counter) interest rate derivatives in the Australian component of its
portfolio. It will not use derivatives where it would contravene the guidelines
set by the rating agencies for AMPS issues. Currency derivatives are not used to
hedge Australian dollar currency risk associated with the Fund's investments in
Australia.
U.S. SECURITIES
Government. The Fund is permitted to invest in U.S. government
securities, including obligations issued or guaranteed by U.S. government
agencies or instrumentalities, some of which are backed by the full faith and
credit of the U.S. treasury (such as direct pass-through certificates of the
Government National Mortgage Association), some of which are supported by the
right of the issuer to borrow from the U.S. government (such as obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of the
issuer itself. Government obligations do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from U.S. government obligations are generally
lower than the yields available from corporate interest bearing securities. Like
other interest bearing securities, however, the value of Government obligations
changes as interest rates fluctuate.
Corporations and Banks. The Fund is permitted to invest for defensive
and other temporary purposes in U.S. corporate debt instruments rated at the
time of investment Aa or better by Moody's or AA or better by S&P, finance
company and corporate commercial paper, and other short-term
- 55 -
<PAGE>
obligations, in each case rated at the time of investment Prime-1 or Prime-2 by
Moody's or A-2 or better by S&P. The Fund is also permitted to invest in
obligations of U.S. federal or state chartered banks and bank holding companies
rated at the time of investment Aa or better by Moody's or AA or better by S&P
(including certificates of deposit, bankers' acceptances and other short-term
debt obligations).
REPURCHASE AGREEMENTS
The Fund is permitted to invest in repurchase agreements with banks and
broker-dealers. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually no more than one
week) subject to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Investment Manager monitors the value of such securities
daily to determine that the value equals or exceeds the repurchase price. Under
the Investment Company Act, repurchase agreements are considered to be loans
made by the Fund which are collateralized by the securities subject to
repurchase. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Fund's Board of Directors, i.e., banks or broker-dealers which
have been determined by the Investment Manager to present no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase transaction.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The names and addresses of the Directors and officers of the Fund are
set forth below, together with their positions and their principal occupations
during the past five years and, in the case of the Directors, their positions
with certain other organizations and companies. Directors who are "interested
persons" of the Fund, as defined by the Investment Company Act, are indicated by
an asterisk.
Although the Fund is a Maryland corporation, certain of its Directors
and officers (Messrs. Maddock, Miles, Sacks, Fraser, Sherman, Cutler, Horsburgh,
Knight, Elsum, Freedman, Manor, Yontef and Randall) are non-residents of the
United States and have all, or a substantial part, of their assets located
outside the United States. None of the Directors or officers has authorized an
agent for service of process in the United States. As a result, it may be
difficult for U.S. investors to effect service of process upon the Directors and
officers within the United States or to effectively enforce judgments of courts
of the United States predicated upon civil liabilities of the Directors or
officers under the federal securities laws of the United States. The Fund has
been advised by Jersey counsel that it is unlikely that the courts of Jersey
would adjudge civil liability against Directors and officers resident in Jersey
in an original action predicated solely on a violation of the federal securities
laws of the United States. Although there is no arrangement in place between
Jersey and the United States for the reciprocal enforcement of judgments, a
judgment against the Directors and officers in an original action predicated on
such provisions rendered by a court in the United States would be enforceable by
action or
- 56 -
<PAGE>
counterclaim or be recognized by the Jersey courts as a defense to an action or
as conclusive of an issue in that action unless obtained by fraud or otherwise
than in accordance with the principles of natural justice or unless contrary to
public policy or unless the proceedings in the United States court were not duly
served on the defendant in the original action. There is doubt as to the
enforceability in Australia and Canada, the countries in which other Directors
and officers are resident, of these civil liability provisions, whether or not
the liabilities are based upon judgments of courts in the United States or are
pursuant to original actions.
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
Anthony E. Aaronson++ Class I Director Director, The First Australia Fund, Inc. (since 1985);
116 South Anita Avenue Tony Aaronson (textile agent) (since 1993); Vice
Los Angeles, CA 90049 President, Fortune Fashions (1992- 1993); President
Fashion Fabric Division, Forrest Fabrics (textiles)
(August 1991-1992); Director, PKE Incorporated (consulting
company) (1988-1990); Director, Textile Association of Los
Angeles (1990-1993); Vice President, Textile Association
of Los Angeles (1996-1997); Director O.T.C. Sales, Emday
Fabric Co. (textiles) (1986-1991); Executive
Vice-President and Secretary-Treasurer, J&J Textiles Inc.,
(1982-1986).
Roger C. Maddock* Class I Director Director, The First Australia Fund, Inc. and The First
Union House, Union Street Commonwealth Fund, Inc. (since 1992); Chairman and
St. Helier, Jersey Managing Director, EquitiLink International Management
Channel Islands JE4 8TQ Limited (since 1985); Partner, Jackson Fox, Chartered
United Kingdom Accountants (since 1981); Director, Worthy Trust Company
Limited (since 1993); Director, Professional Consultancy
Services Limited (since 1983); Director, Honeywell Spring
Limited (since 1987); Director, The EquitiLink Private
Gold Investment Fund Limited (since 1992); Director,
CentraLink-EquitiLink Investment Company Limited (since
1994).
</TABLE>
- 57 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
Neville Miles Class I Director Director, The First Australia Fund, Inc. (since 1996);
23 Regent Street Director, MaxiLink Limited (investment company); Director,
Paddington, N.S.W. 2021 Walker Corp. Limited (property development); Director,
Australia First Resources Development Fund Limited (investment
company); Executive Director, EL&C Ballieu Limited (stock
broker) (1994-1996); Executive Director, Old Minnett
Securities Limited (stock broker) (1998-1994).
John T. Sheehy++ Class I Director Director, The First Australia Fund, Inc. (since 1985),
2700 Garden Road First Australia Prime Income Investment Company Limited
Suite G (since 1986) and The First Commonwealth Fund, Inc. (since
Monterey, CA 93940 1992); Managing Director, The Value Group LLC (merchant
banking) (since 1997); Managing Director, Black & Company
(broker-dealer and investment bankers); Director, Greater
Pacific Food Holdings Inc. (food industry investment
company) (since 1993); Director, Video City, Inc. (video
retail merchandising); Partner, Sphere Capital Partners
(corporate consulting) (since 1987); Director, Sphere
Capital Advisors (investment adviser); Director, Sandy
Corporation (corporate consulting, communication and
training) (1986-1996); Associate Director, Bear Stearns &
Co. Inc. (1985-1987); previously, Limited Partner, Bear
Stearns & Co. Inc.
Rt. Hon. Malcolm Fraser Class II Director Director, The First Australia Fund, Inc. (since 1985),
A.C., C.H.+ First Australia Prime Income Investment Company Limited
44/55 Collins Street (since 1986) and The First Commonwealth Fund, Inc. (since
Melbourne, Victoria 3000 1992); Partner, Nareen Pastoral Company (agriculture);
Australia Fellow, Center for International Affairs, Harvard
University; International Council of Associates, Claremont
University; Chairman, CARE Australia (since 1987);
President, CARE International (1990-1995); Member, ANZ
International Board of Advice (1987-1990); InterAction
Council for Former Heads of Government (since 1987,
Chairman since 1997); Co-Chairman,
</TABLE>
- 58 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
Commonwealth Eminent Persons Group on Southern Africa
(1985-1986); Chairman, United Nations Committee on
African Commodity Problems (1989-1990); Consultant, The
Prudential Insurance Company of America; International
Consultant on Political, and Strategic Affairs (since 1983);
Parliamentarian-Prime Minister of Australia (1975-1983).
Harry A. Jacobs, Jr.* Class II Director Director, The First Australia Fund, Inc. (since 1985);
One New York Plaza Chairman and Chief Executive Officer, Prudential Mutual Fund
New York, NY 10292 Management, Inc. (June-September 1993); Senior Director,
Prudential Securities Incorporated (since 1986); previously,
Chairman of the Board, Prudential Securities Incorporated
(1982-1985); Chairman of the Board and Chief Executive
Officer, Bache Group, Inc. (1977-1982); Trustee, The Trudeau
Institute (eleemosynary); Director of 11 investment
companies affiliated with Prudential Securities Incorporated.
Howard A. Knight Class II Director Director, The First Australia Fund, Inc. (since 1993);
36 Ive Street Director, Vice Chairman and Chief Operating Officer,
London SW3 2ND Scandinavian Broadcasting System S.A. (television and
United Kingdom radio broadcasting) (since 1996); Private Investor and
Consultant (1994-1996); President of Investment Banking,
Equity Transactions and Corporate Strategy, Prudential
Securities Incorporated (1991-1994); former Chairman and
Chief Executive Officer, Avalon Corporation (1984-1990);
Managing Director, President and Chief Executive Officer,
Weeks Petroleum Limited (1982-1984); General Counsel,
member of the Executive Committee and Director, Farrell
Lines Incorporated (1976-1982); Partner, Cummings & Lockwood
(1963-1976).
</TABLE>
- 59 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
Peter D. Sacks++ Class II Director Director, The First Commonwealth Fund, Inc. (since 1992);
33 Yonge Street President and Director, Toron Capital Markets, Inc.
Suite 706 (currency, interest rate and commodity risk management)
Toronto, Ontario M5E 1G4 (since 1988); Director, Toron Capital Management Ltd.
Canada (commodity trading adviser) (since 1994); Vice President
and Treasurer, Midland Bank Canada (1987-1988); Vice
President and Treasurer, Chase Manhattan Bank of Canada
(1985-1987).
Brian M. Sherman* Class II Director; President and Director, The First Australia Fund, Inc.
Level 3 President (since (since 1985); Joint Managing Director (since 1986) and
190 George Street 1986) Chairman (since 1995), First Australia Prime Income
Sydney, N.S.W. 2000 Investment Company Limited; Director and Vice President
Australia (since 1992) and Chairman (since 1995), The First
Commonwealth Fund, Inc.; Chairman and Joint Managing Director,
EquitiLink Limited (since 1986); Chairman and Joint Managing
Director, EquitiLink Australia Limited (since 1981); Director,
EquitiLink International Management Limited (since 1985);
Joint Managing Director, MaxiLink Limited (since 1987);
Executive Director, MaxiLink Securities Limited (since 1987);
Director, First Resources Development Fund Limited (since
1994); Director, Ten Group Limited (since 1994); Director,
Telecasters North Queensland Limited (since 1993); Director,
Sydney Organizing Committee for The Olympic Games.
Sir Roden Cutler, V.C., A.K., Class III Director; Director, The First Australia Fund, Inc. (since 1985);
K.C.M.G., Chairman of the Chairman (1986-1995) and Director (since 1986), First
K.C.V.O., C.B.E., K.St.J.+ Board (1986-1995) Australia Prime Income Investment Company Limited;
22 Ginahgulla Road Chairman (1992-1995) and Director (since 1992), The First
Bellevue Hill, N.S.W. 2023 Commonwealth Fund, Inc.; Australia Director, Rothmans
Australia Holding Ltd. (formerly Rothmans Pall Mall) (tobacco)
(1981-1994); Chairman, State Bank of New South Wales
(1981-1986); Governor of New South Wales, Australia
(1966-1981).
</TABLE>
- 60 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
David Lindsay Elsum + Class III Director Director, The First Australia Fund, Inc. (since 1985),
9 May Grove First Australia Prime Income Investment Company Limited
South Yarra, Victoria 3141 (since 1986) and The First Commonwealth Fund, Inc. (since
Australia 1992); Director, IlTec Limited (1993-1996); President,
State Superannuation Fund of Victoria (1986-1993);
Director, MaxiLink Limited; Managing Director, The MLC
Limited (insurance) (1984-1985); Managing Director, Renison
Goldfields Consolidated Limited (mining) (1983-1984);
Member, Federal Administrative Appeals Tribunal; Member,
Corporations and Securities Panel of the Australian
Securities and Investments Commission of Australian States
and Territories; Chairman, Queen Victoria Market;
Director, First Resources Development Fund Limited and
Statewide Friendly Society; Chairman, Stodart Investment
Pty. Ltd.; Chairman, Melbourne Wholesale Fish Market Ltd.;
Adviser, TASA International Executive Search; Chairman,
Health Computing Services Limited.
Laurence S. Freedman* Class III Director; Chairman (since 1995) and Vice President and Director
Level 3 Chairman (since (since 1985), The First Australia Fund, Inc.; Joint
190 George Street 1995); Vice President Managing Director, First Australia Prime Income Investment
Sydney, N.S.W. 2000 (since 1986) Company Limited (since 1986); President and Director, The
Australia First Commonwealth Fund, Inc. (since 1992); Founder and
Director, EquitiLink Limited (since 1986); Joint Managing
Director, EquitiLink Australia Limited (since 1982); Director,
EquitiLink International Management Limited (since 1985);
Chairman and Joint Managing Director, MaxiLink Limited (since
1987); Executive Director MaxiLink Securities Limited (since
1987); Chairman and Director, First Resources Development
Fund Limited (since 1994); Joint Managing Director, Ten Group
Limited(since 1994); Director, Telecasters North Queensland
Limited (since 1993); Managing Director, Link Enterprises
(International) Pty. Limited
</TABLE>
- 61 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
(investment management company) (since 1980); Manager of
Investments, Bankers Trust Australia Limited (1978-1980);
Investment Manager, Consolidated Goldfields (Australia)
Limited (natural resources investments), (1975-1978).
Michael R. Horsburgh Class III Director Director, The First Australia Fund, Inc. (since 1985);
21, 22/FI Ssang Yong Tower Director, The First Commonwealth Fund, Inc. (since 1994);
23-2 Yuido-dong Executive Vice President, Hannuri Securities Investment,
Youngdungpo-gu, Ltd. (since October 1997); Managing Director, Carlson
Seoul 150-010, Korea Investment Management, Inc. (1996-October 1997); Director
and Chief Executive Officer, Horsburgh Carlson Investment
Management, Inc. (1991-1996); Director, The First Hungary
Fund; Managing Director, Barclays de Zoete Wedd Investment
Management (U.S.A.) (1990-1991); Special Associate
Director, Bear Stearns & Co, Inc. (1989-1990); Senior
Managing Director, Bear Stearns & Co. Inc. (1985-1989);
General Partner, Bear, Stearns & Co. Inc. (1981-1985);
previously Limited Partner, Bear, Stearns & Co. Inc.
William J. Potter+ Class III Director Director, The First Australia Fund, Inc. (since 1985), The
380 Lexington Avenue First Australia Prime Income Investment Company Limited
Suite 1511 (since 1986) and The First Commonwealth Fund, Inc. (since
New York, NY 10168 1992); Partner, Sphere Capital Partners (corporate
consulting) (1989-1997); President, Ridgewood Partners,
Ltd. (investment banking) (since 1989); Managing Director,
Prudential-Bache Securities Inc. (1984-1989); Director and
Chairman of Finance, National Foreign Trade Association
(USA); Director, Ridgewood Capital Funding, Inc. (NASD);
Director, Alexandria Bancorp Limited (banking group in
Cayman Islands); Director, Battery Technologies, Inc.;
Consultant, Trieste Futures Exchange, Inc.; Director,
Impulsora del Fondo Mexico; Director, International Panorama
Resources Ltd.; Director, Voicenet, Inc.; Director, Canadian
Health Foundation; First Vice President, Barclays Bank, plc
(1982-1984); previously
</TABLE>
- 62 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
various positions with Toronto Dominion Bank.
David Manor* Preferred Director; Treasurer, The First Australia Fund, Inc. (since 1987);
Level 3 Treasurer Director and Treasurer, The First Commonwealth Fund, Inc.
190 George Street (since 1987) (since 1992) and Treasurer, First Australia Prime Income
Sydney, N.S.W. 2000 Investment Company Limited (since 1987); Executive
Australia Director, EquitiLink Australia Limited and EquitiLink
Limited (1986-1998); Director, EquitiLink International
Management Limited (since 1987) and EquitiLink U.S.A., Inc.;
Director, Telecasters Australia Limited (1995-1997).
Marvin Yontef* Preferred Partner, Stikeman, Elliott (Canadian law firm); Director
P.O. Box 85 Director of and counsel to First Australia Prime Income Investment
5300 Commerce Court West Company Limited; Director and Executive Committee Member,
Toronto, Ontario Gordon Capital Corporation (Canadian investment dealer)
Canada M5L 1B9 (since 1996); Director, Pendaries Petroleum Ltd. (since
1996).
Kenneth T. Kozlowski Assistant Director, Prudential Investments (since 1996); Vice
Gateway Center 3 Treasurer President, Prudential Mutual Fund Management, Inc.
100 Mulberry Street (1992-1996) and Fund Accounting Manager, Pruco Life
Newark, NJ 07102 Insurance Company (life insurance division of The
Prudential Insurance Company) (1990-1992); Assistant
Treasurer, The Prudential Series Fund, Inc. (1990-1992).
Ouma Sananikone-Fletcher Assistant Vice Director (since 1995) and Investment Director (since 1994),
Level 3 President and EquitiLink Australia Limited; Executive Director Banque
190 George Street Chief Investment Nationale de Paris Group (1986-1994).
Sydney, N.S.W. 2000 Officer
Australia
Barry G. Sechos Assistant Director (since 1994) and General Counsel (since 1993),
Level 3 Treasurer EquitiLink Australia Limited; Solicitor, Allen Allen &
190 George Street Hemsley (1986-1993).
Sydney, N.S.W. 2000
Australia
</TABLE>
- 63 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address the Fund** Principal Occupation and Other Affiliations
- ---------------- ---------- -------------------------------------------
<S> <C> <C>
Roy M. Randall Secretary Partner (since 1996), Stikeman, Elliott, Australian
Level 32, Chifley Tower counsel to the Fund; Partner, Freehill, Hollingdale & Page
2 Chifley Square (until 1996).
Sydney, N.S.W. 2000
Australia
Margaret A. Bancroft Assistant Partner, Dechert Price & Rhoads, U.S. counsel to the Fund.
30 Rockefeller Plaza Secretary
New York, NY 10112
Allan S. Mostoff Assistant Partner, Dechert Price & Rhoads, U.S. counsel to the Fund.
1775 Eye Street, N.W. Secretary
Washington, DC 20006
</TABLE>
- ----------
* Directors considered by the Fund and its counsel to be persons who are
"interested persons" (as defined in the Investment Company Act) of the
Fund or of the Fund's Investment Manager or Investment Adviser. Mr.
Jacobs is deemed to be an interested person because of his affiliation
with Prudential Securities Incorporated, a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, which is acting
as a Dealer Manager in connection with the Offer. Messrs. Freedman,
Maddock, Manor and Sherman are deemed to be interested persons because
of their affiliation with the Fund's Investment Manager and Investment
Adviser, or because they are officers of the Fund or both. Mr. Yontef
is deemed to be an interested person because the law firm of which he
is a partner acts as legal counsel for the Investment Adviser and its
parent.
** The Board of Directors is currently divided into three classes (not
including the Preferred Directors). The terms of the Class I, II and
III Directors expire in 2001, 1999 and 2000 respectively. Section 18 of
the Investment Company Act requires that the holders of any preferred
shares, voting separately as a class without regard to series, have the
right to elect at least two Directors at all times. The Preferred
Directors were elected by the holders of the Preferred Stock in
accordance with Section 18.
+ Member, Contract Review Committee.
++ Member, Audit Committee.
BOARD COMMITTEES
The Board of Directors has a standing Audit Committee, which consists
entirely of Directors who are not interested persons of the Fund as defined in
the Investment Company Act. The principal purpose of the Audit Committee is to
review the scope and results of the annual audit conducted by the Fund's
independent accountants and the evaluation by the accountants of the accounting
procedures followed by the Fund. The Board of Directors also has a standing
Contract Review Committee which also consists of Directors who are not
interested persons of the Fund. The Contract Review Committee reviews and makes
recommendations to the Board with respect to entering into, renewing or amending
the Management Agreement, the Advisory Agreement and the Administration
Agreement. The Board of Directors does not have a standing nominating committee.
- 64 -
<PAGE>
RELATIONSHIP OF DIRECTORS OR NOMINEES WITH THE INVESTMENT ADVISER AND THE
INVESTMENT MANAGER
EquitiLink Australia Limited, the Investment Adviser, is an indirect
wholly-owned subsidiary of EquitiLink Holdings Limited, a non-listed public
company whose principal shareholders are Messrs. Freedman and Sherman, Directors
of the Fund.
Messrs. Freedman and Sherman also serve as directors of EquitiLink
International Management Limited, the Investment Manager. Mr. Maddock, a
Director of the Fund, is also chairman and managing director of the Investment
Manager. In addition, Messrs. Freedman and Sherman are the principal
shareholders of the Investment Manager, of which Mr. Manor is also a
shareholder. Messrs. Freedman, Sherman and Manor also serve as, respectively,
joint managing director, joint managing director and chairman, and executive
director of the Investment Adviser. Mr. Manor is also a shareholder of
EquitiLink Holdings Limited.
During the fiscal year ended October 31, 1997, Professional Consultancy
Services Limited, a limited company organized under the laws of Jersey, Channel
Islands, provided administrative services to the Investment Manager in
connection with its activities on behalf of the Fund and other U.S. and foreign
investment companies and entities in return for a fee in the amount of $930,000
paid by the Investment Manager. Mr. Maddock is a director and a principal
shareholder of Professional Consulting Services Limited.
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The following table sets forth certain information regarding
compensation of Directors of the Fund and by the Fund and by the fund complex of
which the Fund is a part (the "Fund Complex") for the fiscal year ended October
31, 1997. (The Fund Complex consists of all investment companies having
EquitiLink Australia Limited as investment adviser.) Officers of the Fund and
Directors who are interested persons of the Fund do not receive any compensation
from the Fund or any other investment company in the Fund Complex that is a U.S.
registered investment company.
- 65 -
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
FISCAL YEAR ENDED OCTOBER 31, 1997
<S> <C> <C> <C> <C>
Pension or Total Compensation
Retirement From
Benefits Estimated Registrant
Aggregate Accrued Annual and Fund
Compensation As Part of Benefits Complex Paid
From Fund Expenses Upon to Directors+
Name of Person, Position Registrant Retirement
------------------------ ------------ ------------- ---------- ---------------
Directors:
Anthony E. Aaronson $13,750 N/A N/A $21,250(2)
Sir Roden Cutler 13,750 N/A N/A 29,250(3)
David Lindsay Elsum 13,750 N/A N/A 29,250(3)
Rt. Hon. Malcolm Fraser 13,750 N/A N/A 29,250(3)
Laurence S. Freedman 0 N/A N/A 0(3)
Michael R. Horsburgh 13,750 N/A N/A 29,250(3)
Harry A. Jacobs, Jr. 0 N/A N/A 0(2)
Howard A. Knight 13,750 N/A N/A 21,250(2)
Roger C. Maddock 0 N/A N/A 0(3)
Neville Miles 13,750 N/A N/A 21,250(2)
William J. Potter 13,750 N/A N/A 29,250(3)
Peter D. Sacks 13,750 N/A N/A 21,750(2)
John T. Sheehy 13,750 N/A N/A 29,250(3)
Brian M. Sherman 0 N/A N/A 0(3)
Preferred Directors:
David Manor 0 N/A N/A 0(2)
Marvin Yontef 13,750 N/A N/A 13,750(1)
</TABLE>
- ----------
+ The number in parentheses indicates the total number of boards of
investment companies in the Fund Complex on which the Director serves.
SHARE OWNERSHIP
As of July 31, 1998, the Directors and officers of the Fund as a group
owned an aggregate of less than 1/4 of 1% of the outstanding Common Stock. No
Director or officer of the Fund owns any outstanding Preferred Stock. To the
best knowledge of the management of the Fund, as of the record date, no persons
or groups beneficially own more than 5% of the outstanding shares of common
stock or preferred stock of the Fund.
- 66 -
<PAGE>
MANAGEMENT AGREEMENT AND ADVISORY AGREEMENT
EquitiLink International Management Limited (the "Investment Manager")
serves as investment manager to the Fund and EquitiLink Australia Limited (the
"Investment Adviser") serves as investment adviser to the Fund pursuant to a
management agreement dated February 1, 1990 (the "Management Agreement") and an
advisory agreement dated December 15, 1992 (the "Advisory Agreement"). The
current Management Agreement was initially approved on December 12, 1989 by a
majority of the Fund's Board of Directors and by a majority of the Fund's
Directors who were not interested persons (as defined in the Investment Company
Act) of the Fund, the Investment Manager or the Investment Adviser (the
"Disinterested Directors") and the current Advisory Agreement was similarly
approved by the Fund's Board of Directors on December 15, 1992. The current
Management Agreement and Advisory Agreement were respectively approved by the
stockholders of the Fund at annual meetings held on March 15, 1990 and March 15,
1993. Since those dates, the continuance of each of the Management Agreement and
the Advisory Agreement has been approved annually in accordance with their
respective terms by the Fund's Board of Directors. Pursuant to the existing and
previous management agreements and advisory agreements with the Fund, the
Investment Manager and Investment Adviser have served in these capacities since
the Fund was organized in 1986.
The Investment Manager is a Jersey, Channel Islands corporation
organized in October 1985. The registered office of the Investment Manager is
located at Union House, Union Street, St. Helier, Jersey, Channel Islands.
EquitiLink U.S.A., located at 45 Broadway, New York, NY 10006, acts as the
Investment Manager's agent for service of process in the United States. The
Investment Manager's shares are principally owned by Laurence S. Freedman and
Brian M. Sherman.
The Investment Adviser is a wholly-owned subsidiary of EquitiLink
Limited, an Australian corporation, which is a wholly-owned subsidiary of
EquitiLink Holdings Limited, also an Australian corporation. The registered
offices of the Investment Adviser, EquitiLink Limited and EquitiLink Holdings
Limited are located at Level 3, 190 George Street, Sydney, N.S.W., Australia.
EquitiLink U.S.A. is also the Investment Adviser's agent for service of process
in the United States. The shares of EquitiLink Holdings Limited are principally
owned by Laurence S. Freedman and Brian M. Sherman. Mr. Manor is also a
shareholder of EquitiLink Holdings Limited.
Each of the Investment Manager and the Investment Adviser has all, or
a substantial part of, its assets located outside the United States. As a
result, it may be difficult for U.S. investors to enforce judgments of the
courts of the United States against the Investment Manager and the Investment
Adviser predicated on the civil liability provisions of the federal securities
laws of the United States. The Fund has been advised that there is substantial
doubt as to the enforceability in the courts of Australia of judgments against
the Investment Adviser predicated upon the civil liability provisions of the
federal securities laws of the United States. The Fund also has been advised
that it is unlikely that the courts of Jersey would adjudge civil liability
against the Investment Manager in an original action predicated solely on the
federal securities laws of the United States. However, although there is no
arrangement in place between Jersey and the United States for the reciprocal
enforcement of judgments, the Fund has been advised by Jersey counsel that a
judgment rendered by a court in the United States against the Investment Manager
predicated upon a violation of the federal securities laws of the U.S. would be
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enforceable by action or counterclaim or be recognized by the Jersey courts as a
defense to an action, or as conclusive of an issue in an action, unless obtained
by fraud or otherwise than in accordance with the principles of natural justice
or unless contrary to public policy or unless the proceedings in the United
States court were not duly served on the defendant in the original action. The
Investment Manager and the Investment Adviser are advised by U.S. counsel with
respect to the federal securities laws of the United States.
TERMS OF THE MANAGEMENT AGREEMENT
The Management Agreement provides that the Investment Manager will
manage, in accordance with the Fund's stated investment objective, policies and
limitations and subject to the supervision of the Fund's Board of Directors, the
Fund's investments and make investment decisions on behalf of the Fund including
the selection of, and placing of orders with, brokers and dealers to execute
portfolio transactions on behalf of the Fund. The Management Agreement further
provides that the Investment Manager will not be liable for any error of
judgment or for any loss suffered by the Fund in connection with matters to
which the Management Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to receipt of compensation for services (in which
case any award of damages shall be limited as provided in the Investment Company
Act) or a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of, or from reckless disregard by the Investment
Manager of, its duties and obligations under the Management Agreement.
The Management Agreement provides that the Investment Manager may, at
its expense, employ, consult or associate with itself, such person or persons as
it believes necessary to assist it in carrying out its obligations thereunder,
provided however, that if any such person would be an "investment adviser" as
defined under the Investment Company Act, that (a) the Fund is a party to any
contract with such a person and (b) the contract is approved by the Fund's
Directors, Disinterested Directors, and stockholders, as required by the
Investment Company Act.
Management Fee. The Management Agreement provides that, as
compensation for its services to the Fund, the Fund will pay the Investment
Manager a fee computed at the annual rate of 0.65% of the Fund's average weekly
net assets applicable to Common and Preferred Stock up to $200 million, 0.60% of
such assets between $200 million and $500 million, 0.55% of such assets between
$500 million and $900 million, 0.50% of such assets between $900 million and
$1,750 million, and 0.45% of such assets in excess of $1,750 million, computed
upon net assets applicable to Common and Preferred Stock at the end of each week
and payable at the end of each calendar month. Because of the Fund's objective,
its expense ratio, of which this fee is a component, may be higher than that of
closed-end investment companies of comparable size investing in U.S. securities.
For the fiscal years ended October 31, 1997, 1996 and 1995, the Fund
paid or accrued on behalf of the Investment Manager aggregate management fees of
$12,637,375, $11,251,987, and $9,165,046, respectively. During the same periods,
the Investment Manager informed the Fund that it paid aggregate advisory fees of
$5,602,463, $4,841,352, and $3,952,767, respectively, to the Investment Adviser.
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Payment of Expenses. The Management Agreement obligates the Investment
Manager to bear all expenses of its employees and overhead incurred in
connection with its duties under the Management Agreement and to pay all
salaries and fees of the Fund's Directors and officers who are interested
persons (as defined in the Investment Company Act) of the Investment Manager.
Pursuant to the Management Agreement, the Fund will bear all of its own expenses
including: expenses of organizing the Fund; fees of the Fund's Disinterested
Directors; out-of-pocket travel expenses for all Directors; interest expense;
taxes and governmental fees, brokerage commissions and other expenses incurred
in acquiring or disposing of the Fund's portfolio securities; expenses of
preparing stock certificates; expenses in connection with the issuance,
offering, distribution, sale or underwriting of securities issued by the Fund;
expenses of registering and qualifying the Fund's shares for sale with the
Commission and in various states and foreign jurisdictions; auditing,
accounting, insurance and legal costs; custodian, dividend disbursing and
transfer agent expenses of obtaining and maintaining stock exchange listings of
the Fund's shares; and the expenses of stockholders' meetings and of the
preparation and distribution of proxies and reports to stockholders.
Duration and Termination. The Management Agreement provides that it
will continue in effect for 12-month periods, provided that each continuance is
specifically approved annually by (1) the vote of the majority of the Fund's
Disinterested Directors cast in person at a meeting called for the purpose of
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Management Agreement may be terminated at any
time by the Fund without the payment of any penalty, upon vote of a majority of
the Fund's Directors or a majority of the outstanding voting securities of the
Fund on 60 days' written notice to the Investment Manager. The Management
Agreement will terminate automatically in the event of its assignment (as
defined in the Investment Company Act). In addition, the Investment Manager may
terminate the Management Agreement on 90 days' written notice to the Fund.
TERMS OF THE ADVISORY AGREEMENT
The Advisory Agreement provides that the Investment Adviser will make
recommendations to the Investment Manager as to specific portfolio securities
which are denominated in Australian or New Zealand dollars, to be purchased,
retained or sold by the Fund and will provide or obtain such research and
statistical data as may be necessary in connection therewith. The Advisory
Agreement further provides that the Investment Adviser will give the Investment
Manager and the Fund the benefit of the Investment Adviser's best judgment and
efforts in rendering services under the Advisory Agreement.
The Advisory Agreement provides that neither the Investment Manager
nor the Investment Adviser will be liable for any error of judgment or for any
loss suffered by the Fund in connection with matters to which the Advisory
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to receipt of compensation for services (in which case any award of
damages shall be limited as provided in the Investment Company Act) or a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Investment Manager or the Investment Adviser, as appropriate, in the
performance of, or from reckless disregard by such party of such party's
obligations and duties under, the Advisory Agreement.
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Advisory fee. Under the Management Agreement, the Investment Manager
pays the Investment Adviser an advisory fee at the annual rate of 0.25% of the
Fund's average weekly net assets applicable to Common and Preferred Stock up to
$1,200 million and 0.20% of such assets in excess of $1,200 million at the end
of each week and payable at the end of each calendar month.
Payment of Expenses. The Advisory Agreement obligates the Investment
Adviser to bear all expenses of its employees and overhead incurred in
connection with its duties under the Advisory Agreement and to pay all salaries
and fees of the Fund's Directors and officers who are interested persons (as
defined in the Investment Company Act) of the Investment Adviser but who are not
interested persons of the Investment Manager.
Duration and Termination. The Advisory Agreement provides that it will
continue in effect for 12-month periods, provided that each continuance is
specifically approved annually by (1) the vote of the majority of the Fund's
Disinterested Directors cast in person at a meeting called for the purpose of
voting on such approval and (2) either (a) the vote of a majority of the
outstanding voting securities of the Fund, or (b) the vote of a majority of the
Fund's Board of Directors. The Advisory Agreement may be terminated with respect
to the Fund at any time by the Fund without the payment of any penalty, upon
vote of a majority of the Fund's Directors or a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the Investment
Manager and the Investment Adviser. The Advisory Agreement will terminate
automatically as to any party in the event of its assignment (as defined in the
Investment Company Act) by that party. In addition, the Investment Manager or
the Investment Adviser may terminate the Advisory Agreement as to such party on
90 days' written notice to the Fund and the other party.
PORTFOLIO MANAGEMENT
The Fund's investment decisions are made by a Securities Selection
Committee consisting of representatives of the Australian and Asian Fixed
Interest team and the Investment Director of the Investment Adviser. Two
Investment Adviser Committees, the Asset Allocations Committee and the
Investment Strategy Committee, make broad decisions as to the allocation of
assets and investments, leaving decisions with respect to the selection of
particular securities to the Securities Selection Committee, which then
recommends to the Investment Manager that certain securities be bought or sold.
YEAR 2000 COMPLIANCE BY THE FUND
The Investment Manager and Investment Adviser are coordinating,
managing and monitoring Year 2000 readiness for the Fund. The Investment Manager
is working with vendors who provide services, software and systems to the Fund
to help ensure that date-related information and data can be properly processed
and calculated on and after January 1, 2000. Many Fund service providers and
vendors, including the Investment Manager and Investment Adviser, are in the
process of making Year 2000 modifications to their services, software and
systems and believe that such modifications will be completed on a timely basis
prior to January 1, 2000. The cost of these modifications will not affect the
Fund. However, no assurances can be given that all modifications required to
ensure proper data
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processing and calculation on and after January 1, 2000 will be timely made or
that services to the Fund will not be adversely affected.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement effective as of December 13,
1988 (the "Administration Agreement"), Prudential Investments Fund Management
LLC (the "Administrator") provides office facilities and personnel adequate to
perform the following services for the Fund: oversee the determination and
publication of the Fund's NAV in accordance with its policy as adopted from time
to time by the Board of Directors; oversee the maintenance of the books and
records of the Fund required under Rule 31a-1(b)(4) under the Investment Company
Act; prepare the Fund's U.S. federal, state and local income tax returns;
prepare financial information for the Fund's proxy statements and quarterly and
annual reports to stockholders; prepare the fund's periodic financial reports to
the Commission; and respond to or refer to the Fund's officers or transfer agent
stockholder inquiries relating to the Fund.
The Fund pays the Administrator a fee computed at the annual rate of
0.15% of the Fund's average weekly net assets applicable to Common and Preferred
Stock up to $900 million, and 0.10% of such assets between $900 million and
$1,750 million and 0.07% of such assets in excess of $1,750 million, based upon
NAV applicable to Common and Preferred Stock at the end of each week and payable
at the end of each calendar month. For the fiscal years ended October 31, 1997,
1996 and 1995, the Fund paid the Administrator a fee of $2,676,338, $2,465,669,
and $2,120,097, respectively. The Administrator's offices are located at Gateway
Center 3, 100 Mulberry Street, Newark, New Jersey 07102.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Portfolio transactions of the Fund are primarily effected with dealers
acting as a principal for their own account. During the fiscal years ended
October 31, 1997, 1996 and 1995, the Fund paid no brokerage commissions. In the
event the Fund were to place an order with a broker, the primary objective would
be to obtain best execution taking into account a variety of factors including
price, commission, size order, difficulty of execution and skill required of the
broker.
Subject to best execution, orders will be placed with brokers who
supply research, market and statistical information ("research") to the Fund,
the Investment Manager and the Investment Adviser. The research may be used by
the Investment Manager and the Investment Adviser in advising other clients, and
the Fund's commissions to brokers supplying research may not represent the
lowest obtainable commission rates. Although research from brokers supplying
research may be useful to the Investment Manager and the Investment Adviser, it
will be only supplementary to their own efforts.
NET ASSET VALUE OF COMMON STOCK
The NAV per share of Common Stock is determined no less frequently
than the close of business (generally 5:00 p.m. New York City time) on the last
business day of each week (generally
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Friday) ("Valuation Date") by dividing the value of net assets of the Fund (the
value of its assets less its liabilities, its accumulated and unpaid dividends
(whether or not earned or declared) on outstanding shares of Preferred Stock and
the aggregate liquidation value of such outstanding shares of Preferred Stock)
by the total number of shares of Common Stock outstanding. The Board of
Directors has established procedures to value the Fund's securities in order to
determine the NAV. A security for which market quotations are readily available
either on a recognized exchange or from a designated pricing service is valued
at the security's last quoted sale price on the exchange or the last trade price
quoted by the designated pricing service if the trade price reflects a trade on,
or within one local business day prior to, the Valuation Date. All other
securities for which OTC market quotations are readily available are valued at
the average of the last bid price and the last asked price as of the Valuation
Date, provided that the spread between the bid price and the asked price is
determined in good faith to be reasonable. Securities and other assets for which
market prices are not readily available are valued at fair value, as determined
by the Valuation Committee and approved by the Directors.
The values of the Fund's assets and liabilities are translated into
U.S. dollars at the closing selling rate of the U.S. dollar against the
currencies in which the Fund's assets and liabilities are denominated at the end
of each calendar week quoted by a money center bank or, if no such rate is
quoted at such time, at such other appropriate rate as may be determined by the
Fund's Board of Directors.
The Common Stock is listed on the AMEX and the PSE. Shares of
closed-end investment companies frequently trade at a discount from NAV, but in
certain instances have traded above NAV. The Fund's shares have traded in the
market below, at or above NAV since the commencement of the Fund's operations.
The Fund cannot predict whether its shares will trade above or below NAV in the
future.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund distributes to stockholders, at least annually, substantially
all of its net investment income and net realized capital gains. To the extent
practicable, the Fund attempts to maintain a constant level of monthly
distributions to stockholders, although there can be no assurance that it will
continue to be able to do so. See "Risk Factors and Special Considerations --
Current Distribution Rate." The Offer may have a dilutive impact on investment
income available for distribution. Shares purchased pursuant to the Offer will
be issued after the record date for the monthly distribution declared in
_______, 1998 and accordingly, the Fund will not pay such monthly distribution
with respect to such Shares.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), stockholders may elect to have all distributions automatically
reinvested by State Street Bank and Trust Company, the Plan Agent, in Fund
Shares on a monthly basis. Stockholders who do not participate in the Plan will
receive all distributions in cash paid by check in U.S. dollars mailed directly
to the stockholder.
Any stockholder may enroll in the Plan by contacting the Plan Agent.
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If shares are held of record by a stockholder, the stockholder can
participate directly in the Plan. If shares are held in the name of a brokerage
firm, bank, or other nominee, a stockholder must instruct its nominee to
participate on the stockholder's behalf. If the stockholder's brokerage firm,
bank or other nominee is unable to participate on its behalf, the stockholder
must request it to re-register such shares in the stockholder's own name which
will enable the stockholder's participation in the Plan.
The Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time as representing the total amount registered
in a stockholder's name or held by a nominee. Nominees should provide to the
Plan Agent a listing of participating beneficial owners.
If the Fund declares an income dividend or capital gains distribution
payable in stock to stockholders who are not Plan participants, the participants
will receive that dividend or distribution in newly-issued shares on identical
terms and conditions.
In every other case Plan participants will receive shares on the
following basis: If the market price of the Fund's Common Stock plus any
brokerage commission is equal to or exceeds NAV, stockholders will receive
newly-issued shares valued at the greater of NAV or 95% of current market price.
If, on the other hand, the NAV plus any brokerage commission exceeds the market
price, the Plan Agent will buy shares in the open market. If the market price
plus any applicable brokerage commission exceeds NAV before the Plan Agent has
completed its purchases, the Fund will issue new shares to complete the program.
All reinvestments are in full and fractional shares carried to three decimal
places.
Participants in the Plan have the option of making additional cash
payments to the Plan Agent, in any amount of at least US$100 monthly. The Plan
Agent will use all funds received from participants (as well as any dividends
and capital gains distributions received in cash) to purchase Fund shares in the
open market on or about the fifteenth of each month. Interest will not be paid
on any uninvested cash payments. To avoid unnecessary cash accumulations, and
also to allow ample time for receipt and processing by the Plan Agent,
participants should send in voluntary cash payments to be received by the Plan
Agent not earlier than ten or later than five business days before the fifteenth
of the month. Cash payments received within five business days of the investment
date will be held by the Plan Agent until the following month's investment date.
A participant may withdraw a voluntary cash payment by written notice, if the
notice is received by the Plan Agent not less than 48 hours before such payment
is to be invested.
The Plan Agent maintains all stockholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by stockholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each stockholder's
proxy will include those shares purchased pursuant to the Plan.
In the case of stockholders, such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the stockholders as representing the total amount registered in the
stockholder's name or held for the account of beneficial owners who are to
participate in the Plan.
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There is no charge to participants for reinvesting dividends or
capital gains distributions. The Plan Agent's fees for the handling of
reinvestment of dividends and distributions will be paid by the Fund. There are
no brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in stock or in
cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions. A
participant also will pay brokerage commissions incurred in purchases from
voluntary cash payments made by the participant.
With respect to purchases from voluntary cash payments, the Plan Agent
will charge US$0.75 for each such purchase from a participant, plus a pro rata
share of the brokerage commissions. Brokerage charges for purchasing small
amounts of stock for individual accounts through the Plan are expected to be
less than the usual brokerage charges for such transactions because the Plan
Agent will be purchasing stock for all participants in blocks and prorating the
lower commission thus attainable.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income tax that may be payable on such dividends or
distributions.
The Fund reserves the right to amend or terminate the Plan as applied
to any voluntary cash payments made and any dividend or distribution paid
subsequent to notice of the change sent to the members of the Plan at least 90
days before the record date for such dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent by at least 90 days' written notice
to members of the Plan. All correspondence concerning the Plan should be
directed to the Plan Agent at State Street Bank and Trust Company, P.O. Box
8200, Boston, Massachusetts 02266-8200 Attention: Dividend Reinvestment
Department.
TAXATION
The following is intended to be a general summary of certain tax
consequences that may result to the Fund and its stockholders. It is not
intended as a complete discussion of all such tax consequences, nor does it
purport to deal with all categories of investors. Investors are therefore
advised to consult with their tax advisers before making an investment in the
Fund. The summary is based on the laws in effect on the date of this Prospectus,
which are subject to change.
UNITED STATES TAXES
TAX TREATMENT OF THE FUND -- GENERAL
The Fund intends to continue to qualify annually to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, or
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other income derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income Requirement"); (b) diversify its
holdings so that, at the end of each quarter of the taxable year (i) at least
50% of the market value of the Fund's assets is represented by cash and cash
items, U.S. government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for purposes of this calculation to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment companies); and (c)
distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest, and net short-term capital
gains in excess of net long-term capital losses) each taxable year. The U.S.
Treasury Department has authority to promulgate regulations pursuant to which
gains from foreign currency (and options, futures and forward contracts on
foreign currency) not directly related to a regulated investment company's
business of investing in stocks and securities would not be treated as
qualifying income for purposes of the Qualifying Income Requirement. To date,
such regulations have not been promulgated.
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years), if any,
that it distributes to stockholders. However, the Fund would be subject to
corporate income tax (currently at a 35% rate) on any undistributed income. The
Fund intends to distribute to its stockholders, at least annually, substantially
all of its investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the 12-month period ending on October 31 of the calendar year, and
(3) all such ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as having been
paid on December 31 if it is declared by the Fund in October, November or
December with a record date in such month and is paid by the Fund in January of
the following year. Accordingly, such distributions will be taxable to
stockholders in the calendar year in which the distributions are declared. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement. The
Fund may distribute net capital gains at least annually and designate them as
capital gain diidends where appropriate, or, alternatively, the Fund may choose
to reain net capital gains and pay corporate income tax (and, possibly, an
excise tax) thereon. In the event that the Fund retains net capital gains, the
Fund would most likely make an election which would require each stockholder of
record on the last day of the Fund's taxable year to include in gross income for
U.S. federal tax purposes his or her proportionate share of the Fund's
undistributed net capital gain. If such an election were made, each stockholder
would be entitled to credit his or her proportionate share of the tax paid by
the Fund against his or her federal income tax liabilities and to claim a refund
to the extent that the credit exceeds such liabilities. Tax-qualified pension
plans and individual retirement accounts ("IRAs") (through their custodian or
trustee), as well as nonresident aliens and foreign
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corporations, can obtain a refund of their proportionate shares of the tax paid
by the Fund by filing a U.S. federal income tax return. In addition, the
stockholder would be entitled to increase the basis of the shares for U.S.
federal tax purposes by an amount equal to 65% of his or her proportionate share
of the undistributed net capital gain.
If in any taxable year the Fund fails to qualify as a regulated
investment company under the Code, the Fund would be taxed in the same manner as
an ordinary corporation and distributions to its stockholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to stockholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the stockholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year and may be required to recognize any net unrealized
gains on its entire portfolio in order to requalify as a regulated investment
company.
DISTRIBUTIONS
For federal income tax purposes, dividends paid by the Fund out of its
investment company taxable income will be taxable to a U.S. stockholder as
ordinary income. Because none of the Fund's income is expected to consist of
dividends paid by U.S. corporations, none of the dividends paid by the Fund is
expected to be eligible for the corporate dividends-received deduction. To the
extent that the Fund designates distributions of net capital gains as capital
gain dividends, such distributions will be taxable to a stockholder as long-term
gain, regardless of how long the stockholder has held the Fund's shares, and are
not eligible for the dividends-received deduction. Distributions in excess of
the Fund's investment company taxable income and net capital gains will first
reduce a stockholder's basis in his shares and, after the stockholder's basis is
reduced to zero, will constitute capital gains to a stockholder who holds his
shares as capital assets.
Stockholders participating in the Plan receiving a distribution in the
form of newly-issued shares will be treated for U.S. federal income tax purposes
as receiving a distribution in an amount equal to the fair market value,
determined as of the distribution date, of the shares received and will have a
cost basis in each share received equal to the fair market value of a share of
the Fund on the distribution date. Stockholders participating in the Plan
receiving a distribution in the form of shares purchased by the Plan Agent in
the open market will be treated for U.S. federal income tax purposes as
receiving a distribution of the cash that such stockholder would have received
had it not elected to have such distribution reinvested and will have a cost
basis in such shares equal to the amount of such distribution. Stockholders will
be notified annually as to the U.S. federal tax status of distributions, and
stockholders receiving distributions in the form of newly-issued shares will
receive a report as to the fair market value of the shares received.
The Fund presently intends that it will designate as capital gain
dividends a proportionate part of the dividends paid to holders of Preferred and
Common Stock.
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SALE OF SHARES
Upon the sale or other disposition of shares of the Fund, or upon
receipt of a distribution in complete liquidation of the Fund, a stockholder may
realize a taxable gain or loss depending upon his basis in the shares. The gain
or loss generally will be treated as capital gain or loss if the shares are
capital assets in the stockholder's hands and generally will be long-term or
short-term gain, depending upon the stockholder's holding period for the shares.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In that case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a stockholder on a disposition of Fund shares held by the
stockholder for six months or less will be treated as long-term capital loss to
the extent of any distributions of capital gain dividends received by the
stockholder with respect to the shares.
ISSUANCE OF PREFERRED STOCK
The Internal Revenue Service has in a revenue ruling taken the
position that a regulated investment company which has two or more classes of
shares cannot effectively designate distributions made to each class in any year
as consisting of more than that class's proportionate share of particular types
of income including capital gain and foreign source income. When both Common
Stock and Preferred Stock are outstanding, the Fund intends to designate
distributions made to each class as consisting of particular types of income in
accordance with the class's proportionate shares of such income. Thus, the Fund
intends to designate as capital gain dividends a proportionate part of the
dividends paid to holders of Preferred and Common Stock. Also, if the Fund is
eligible to and does elect to pass foreign taxes through to its stockholders,
the Fund intends to designate dividends paid to each class of stockholders as
consisting of a proportionate share of the foreign taxes paid by the Fund.
If the Fund does not meet its asset maintenance requirements (See
"Capital Stock -- Asset Coverage"), it may be required to suspend distributions
to the holders of its Common and/or Preferred Stock until such coverage is
restored. Suspension of distributions might prevent the Fund from qualifying as
a regulated investment company for federal income tax purposes, or, if the Fund
retains such qualification, would cause the Fund to incur income and excise
taxes on its undistributed income. Further, the Fund may be required to redeem
Preferred Stock in order to restore asset coverage to an acceptable level. In
order to effect these redemptions, the Fund may be required to dispose of assets
for cash, and this may result in recognition of gain or loss to the Fund for tax
purposes. This gain or loss (or gain or loss from the remittance to the United
States of proceeds from the disposition of assets) may be treated, in whole or
in part for federal income tax purposes, as gain or loss due to fluctuations in
foreign currency values, which under current law is ordinary rather than capital
in character. Ordinary gain or loss will increase, decrease, or possibly
eliminate the Fund's investment company taxable income distributable to holders
of Common Stock. For example, if losses attributable to foreign currency
fluctuations exceed other investment company taxable income during a taxable
year, the Fund would not be able to make ordinary income dividend distributions,
and all or a portion of distributions made would be treated as a return of
capital to stockholders for federal income tax purposes, rather than as an
ordinary income dividend, reducing each stockholder's tax basis in his Fund
shares. Conversely, gain
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(including gain attributable to foreign currency fluctuations) arising from the
sale of Fund assets to redeem Preferred Stock would increase the amounts
required to be distributed to holders of Common Stock in order for the Fund to
retain its qualification as a regulated investment company and/or to avoid
imposition of income or excise taxes on the Fund.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Under the Code, the gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a currency which is not a functional currency for the
Fund and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a currency which is
not a functional currency of the Fund, gains or losses attributable to
fluctuations in the value of the currency between the date of acquisition of the
security and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gains or
losses, may increase or decrease the amount of the Fund's investment company
taxable income to be distributed to its stockholders as ordinary income.
The Fund uses the Australian dollar as its functional currency in
accounting for its investments in Australia, New Zealand and the Asian
Countries. Gains and losses on non-Australian investments will first be
translated into the Australian dollar equivalent, which may result in Section
988 gains or losses as described above, and then into their U.S. dollar
equivalent for purposes of computing U.S. tax liabilities. Because the
Australian dollar is the functional currency of the Fund, the Fund is not
required to take into account gains or losses attributable to fluctuations in
the value of this functional currency, which otherwise would be treated as
Section 988 gains or losses, described above. However, remittances from
Australia, New Zealand or any one of the Asian Countries to the United States
will result in recognition of ordinary gains or losses attributable to
fluctuations in the value of the Australian dollar.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. For
example, the Fund's interest income derived from Australian sources generally is
subject to a 10% Australian withholding tax. If more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to
"pass-through" to the Fund's stockholders the amount of foreign taxes paid by
the Fund. Pursuant to this election, a stockholder will be required to include
in gross income (in addition to taxable dividends actually received) his
proportionate share of the foreign taxes paid by the Fund, and will be entitled
either to deduct (as an itemized deduction) his pro rata share of foreign taxes
in computing his taxable income or to use it as a foreign tax credit against his
U.S. federal income tax liability, subject to limitations. No deduction for
foreign taxes may be claimed by an individual stockholder who does not itemize
deductions. The deduction for foreign taxes is not allowable in computing
alternative minimum taxable income of non-corporate stockholders. A foreign
stockholder may be subject to U.S. withholding tax on such foreign taxes
included in income, and may be unable to claim a deduction or credit for such
taxes. Each stockholder will be notified within 60 days after the close of the
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Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for the year and of the amount of such taxes deemed paid by the
stockholder.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the stockholder's U.S. tax attributable to his foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income flows through to its stockholders. With respect
to the Fund, certain gain from the sale of securities will be treated as derived
from U.S. sources and currency fluctuation gains, including fluctuation gains
from certain foreign currency denominated debt securities, receivables and
payables, may be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax credit), including
the foreign source passive income passed through by the Fund. Stockholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by the Fund. The foreign tax credit limitation rules do
not apply to certain electing individual taxpayers who have limited creditable
foreign taxes and no foreign source income other than passive investment-type
income. The foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend paying shares or the shares of the Fund
are held by the Fund or the stockholder, as the case may be, for less than 16
days (46 days in the case of Preferred Stock) during the 30-day period (90-day
period for Preferred Stock) beginning 15 days (45 days for Preferred Stock)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to "pass through" to
stockholders the ability to claim a deduction for the related foreign taxes. The
foreign tax credit can be used to offset only 90% of the alternative minimum tax
(as computed under the Code for purposes of this limitation) imposed on
corporations and individuals. If the Fund is not eligible to make the election
to "pass through" to its stockholders its foreign taxes, the foreign taxes it
pays will reduce its income and distributions by the Fund will be treated as
U.S. source income.
The foregoing is only a general description of the foreign tax credit
and, because application of the credit depends on the particular circumstances
of each stockholder, stockholders are advised to consult their own tax advisers.
Assuming that the Fund is eligible and does elect to pass foreign
taxes through to its stockholders, the Fund currently intends to designate
Common and Preferred stockholders' proportionate shares of foreign taxes in the
same proportion as the income subject to such taxes is distributed to each such
stockholder.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax at the
rate of 31% of all taxable distributions payable to stockholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or when the Internal Revenue Service has notified the
Fund or a stockholder that the stockholder is subject to backup withholding.
Corporate stockholders and certain other stockholders specified in the Code
generally are exempt from such
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backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the stockholder's U.S. federal income tax
liability.
FOREIGN STOCKHOLDERS
The tax consequences to a foreign stockholder of an investment in the
Fund may be different from and more adverse than the tax consequences to U.S.
investors described herein. Foreign stockholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
AUSTRALIAN TAXES
The following discussion is based upon the advice of Stikeman,
Elliott, Australian counsel for the Fund and is a general and non-exhaustive
summary of Australian tax considerations which may be applicable to the Fund
under current law.
Under current Australian law, the Fund will be regarded as a
non-resident of Australia. Pursuant to the United States Australia Double Tax
Agreement (the "Agreement") and assuming the Fund to be a resident of the United
States for the purposes of the Agreement, the Fund will not be regarded as
having a permanent establishment in Australia if it has no fixed place of
business or place of management in Australia and if there is no person (other
than a broker or other agent of independent status) in Australia who has
authority to conclude contracts on behalf of the Fund and habitually exercises
that authority. The Fund does not intend to have a fixed place of business or
place of management in Australia or to give any person (other than a broker or
other agent of independent status) in Australia the authority to conclude
contracts on behalf of the Fund, and accordingly none of the Fund's profits
arising from the disposal of its assets should be subject to Australian taxes.
The Fund will be subject to an interest withholding tax at the rate of 10% on
all interest payments (including discounts on money market securities) under
corporate debt instruments, money market securities and Australian Commonwealth
Government and State Government securities (unless a certificate of exemption
from the interest withholding tax is obtained by the issuer in respect of a
particular issue). Australian interest withholding tax does not apply to
interest on Eurodollar obligations issued by non-residents of Australia where
the interest is not an expense incurred by that person in carrying on business
in Australia at or through a permanent establishment in Australia of that
non-resident. See "Taxation--United States Taxes--Foreign Withholding Taxes."
Generally, the Fund will not be subject to a stamp duty on its investments in
government and semi-government securities, promissory notes and bills of
exchange.
CAPITAL STOCK
GENERAL
Set forth below is information with respect to the Fund's outstanding
securities as of July 31, 1998:
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<TABLE>
<CAPTION>
NUMBER OF
SHARES HELD NUMBER OF
NUMBER OF BY THE FUND SHARES
SHARES OR FOR ITS ISSUED AND
TITLE OF CLASS AUTHORIZED ACCOUNT OUTSTANDING
<S> <C> <C> <C>
Common Stock................................ 400,000,000 shares -0- 194,744,328
Auction Market Preferred Stock.............. 100,000,000 shares -0- 24,000
</TABLE>
COMMON STOCK
The Fund's Articles of Amendment and Restatement, as amended to date
(the "Articles") authorize the issuance of up to 400,000,000 shares of Common
Stock. At July 31, 1998, there were 194,744,328 outstanding shares of Common
Stock of the Fund, all of which are fully paid and nonassessable. All shares of
Common Stock are equal as to dividends, assets and voting privileges and have no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of Common Stock is entitled to its proportion of the
Fund's assets after the payment of debts and expenses and after payment of the
aggregate liquidation preferences to holders of Preferred Stock, including the
liquidation preference of $25,000 per share, plus accumulated but unpaid
dividends (whether or not earned or declared), on the outstanding shares of
Preferred Stock. Holders of shares of Common Stock are entitled to one vote per
share and do not have cumulative voting rights.
PREFERRED STOCK
The Fund's Articles authorize the issuance of up to 100,000,000 shares
of Preferred Stock, in one or more series, with rights as determined by the
Board of Directors, by action by the Board of Directors without the approval of
the holders of Common Stock. As of July 31, 1998, an aggregate of 24,000 shares
of Preferred Stock in nine series, designated as Series A, Series B, Series C,
Series D, Series E, Series F, Series G, Series H and Series I, with an aggregate
liquidation preference of $600 million, was outstanding. Under the Investment
Company Act, the Fund is permitted to have outstanding more than one series of
Preferred Stock so long as no single series has a priority over another series
as to the distribution of assets of the Fund or the payment of dividends.
Although the Fund has no current intention to issue additional shares of
Preferred Stock, it may issue additional shares of Preferred Stock at a time the
Board deems appropriate after completion of this Offer.
NO PREEMPTIVE RIGHTS
No holder of shares of the Fund has any preemptive right to acquire
from the Fund any capital stock of the Fund whether now or hereafter authorized.
Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Fund, the holders of shares of any series of Preferred
Stock would be entitled to receive a preferential
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liquidating distribution (to equal the liquidation value of $25,000 per share
plus accrued and unpaid dividends, whether or not declared) before any
distribution of assets is made to holders of Common Stock. After payment of the
full amount of the liquidating distribution to which they are entitled, the
Preferred Stockholders would not be entitled to any further participation in any
distribution of assets by the Fund.
VOTING RIGHTS
Except as otherwise required by applicable law, or by terms of the
Fund's Articles or as may be established at the time of the issuance of any
series of Preferred Stock, holders of shares of Preferred Stock, voting as a
separate class, are entitled to elect two of the Fund's Directors, and the
remaining Directors will be elected by holders of Common Stock. If at any time
dividends on shares of the Fund's Preferred Stock are unpaid in an amount equal
to two full years' dividends, the holders of outstanding shares of Preferred
Stock, voting as a separate class, will be entitled to elect a majority of the
Fund's Directors until all dividends in default have been paid or declared and
set apart for payment.
The terms of the Preferred Stock require a separate class vote of the
Preferred Stock with respect to matters which would affect adversely any
preferences, rights, or powers applicable to the Preferred Stock. Moreover, the
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock, voting as a separate class, would be required to approve any
plan of reorganization adversely affecting these shares or any action requiring
a vote of security holders under Section 13(a) of the Investment Company Act.
REDEMPTION, PURCHASE AND SALE OF PREFERRED STOCK BY THE FUND
The terms of the Preferred Stock provide that the shares are
redeemable by the Fund in whole or in part, at the liquidation value of $25,000
per share plus accrued dividends per share, that the Fund may tender for or
purchase shares of Preferred Stock and that the Fund may subsequently resell any
shares so tendered for or purchased. Any redemption or purchase of shares of
Preferred Stock by the Fund will reduce the leverage applicable to shares of
Common Stock, while any resale of shares by the Fund will increase such
leverage. The Fund may also need to redeem all or a portion of the Preferred
Stock pursuant to the requirements of either the Investment Company Act or the
rating agencies rating the Preferred Stock. The leveraging of the Common Stock
would be eliminated during any period that Preferred Stock is not outstanding.
LEVERAGE
The Preferred Stock results in leveraging, which is usually considered
speculative and involves certain risks to the holders of Common Stock. These
risks include a higher volatility of the NAV of the Common Stock, potentially
more volatility in the market value of the Common Stock and the relatively
greater effect on the NAV of the Common Stock caused by favorable or adverse
changes in currency exchange rates. In addition, fluctuations in the dividend
rates on the Preferred Stock will affect the return to holders of Common Stock,
with increases in the Preferred Stock dividend rates, decreasing the return to
holders of Common Stock. So long as the Fund is able to realize a higher net
return on its
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investment portfolio than the then current dividend rate of the Preferred Stock,
the effect of leverage will be to cause holders of Common Stock to realize a
higher current rate of return than if the Fund were not leveraged. On the other
hand, to the extent that the current dividend rate on the Preferred Stock
approaches the net return on the Fund's investment portfolio, as is currently
the case, the Fund's leveraged capital structure results in a lower rate of
return to holders of Common Stock than if the Fund were not leveraged. Further,
because any decline in the NAV of the Fund's investments will be borne entirely
by holders of Common Stock, in a declining market the Fund's leverage would
result in a greater decrease in NAV to holders of Common Stock than if the Fund
were not leveraged. This would likely be reflected in a greater decline in the
market price for shares of Common Stock and, if the Fund's current investment
income were not sufficient to meet dividend requirements on Preferred Stock, it
could be necessary for the Fund to liquidate certain of its investments, thereby
further reducing the NAV attributable to the Fund's Common Stock.
Because under historical market conditions, Australian and New Zealand
long-term debt obligations have produced higher yields than U.S. short-term
obligations, the difference between the U.S. short-term rates paid by the Fund
on the Preferred Stock and the net Australian and New Zealand long-term debt
rates received by the Fund has, over the life of the Fund, provided holders of
Common Stock with a higher yield. Holders of Common Stock have generally
benefited from the Fund's issuance of the Preferred Stock which commenced in
1989. Since the fiscal quarter beginning August 1, 1997, however, the shrinking
yield differential between Australian and U.S. interest rates and a depreciating
Australian dollar have resulted in the Preferred Stock having a negative impact
on the total return to holders of Common Stock. Because the Investment Manager's
and the Investment Adviser's fees are based on the average net assets of the
Fund, which include the Preferred Stock, the Investment Manager and Investment
Adviser have benefited from the Fund's determination not to redeem the Preferred
Stock.
The proposed investment of a significant percentage of the Fund's total
assets in higher yielding Asian debt securities, as recommended by the Fund's
Investment Manager and Investment Adviser, and approved by Common and Preferred
stockholders in May 1998, is expected to increase the Fund's earnings to a
position where the leverage will have a positive effective on stockholder
returns. See "The Offer--Purpose of the Offer." The implementation of this
strategy is proposed to occur within approximately three months after the
completion of the Offer by a combination of investing the net proceeds of the
Offer together with the proceeds from the sale of existing portfolio securities
and proceeds received from maturing Australian debt securities held in the
Fund's portfolio. Stockholders are cautioned that there can be no guarantee of
future performance and the Fund's investment in Asian debt securities involves
risks and uncertainties so that actual results may differ materially from those
anticipated as a result of various factors. The Fund undertakes no obligation to
update or revise the disclosure in this Prospectus with regard to the effect of
investment in Asia on the Fund's leverage to reflect current events or
circumstances after the date of this Prospectus or to reflect the occurrence of
unanticipated events.
ASSET COVERAGE
Under the Investment Company Act, the Fund is not permitted to issue
shares of Preferred Stock unless immediately after the issuance the asset
coverage of the Fund's portfolio is at least 200% of the liquidation value of
the outstanding Preferred Stock ($25,000 plus any accrued and unpaid
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dividends). In addition, the Fund is not permitted to declare any cash dividend
or other distribution on its Common Stock unless, at the time of the
declaration, the NAV of the Fund's portfolio (determined after deducting the
amount of any dividend or other distribution) is at least 200% of the
liquidation value of the Preferred Stock.
Under the terms of the Preferred Stock, the Fund could be required to
suspend distributions to holders of Common Stock in order to maintain the asset
coverage required by the Investment Company Act. The suspension of distributions
might prevent the Fund from qualifying as a regulated investment company for
federal income tax purposes, or, if the Fund retains the qualification, could
cause the Fund to incur income and excise taxes on its undistributed income.
Further, the Fund could be required to redeem Preferred Stock in order to
restore asset coverage to an acceptable level. In order to effect redemptions,
the Fund could be required to dispose of assets for cash, which could result in
recognition of gain or loss to the Fund for tax purposes. This gain or loss
could be treated, in whole or in part for federal income tax purposes, as gain
or loss due to fluctuations in foreign currency values, which under current law
is ordinary rather than capital in character. Ordinary gain or loss would
increase, decrease, or possibly eliminate the Fund's investment company taxable
income distributable to holders of Common Stock. For example, if losses
attributable to foreign currency fluctuations exceed other investment company
taxable income during a taxable year, the Fund would not be able to make
ordinary dividend distributions, or distributions made would be treated as a
return of capital to stockholders for federal income tax purposes, rather than
as an ordinary dividend, reducing each stockholder's tax basis in his Fund
shares. Conversely, gain (including gain attributable to foreign currency
fluctuations) arising from the sale of Fund assets to redeem Preferred Stock
would increase the amounts required to be distributed to holders of Common Stock
in order for the Fund to retain its qualification as a regulated investment
company and/or avoid imposition of income or excise taxes on the Fund. See
"Taxation."
The Fund's outstanding Preferred Stock is currently rated "aa" and AA
by Moody's and S&P, respectively. In order to obtain these ratings, the Fund is
required to maintain portfolio holdings meeting specified guidelines of these
rating agencies. The guidelines impose asset coverage requirements that are more
stringent than those imposed by the Investment Company Act.
RATING AGENCY GUIDELINES
The Fund intends that, so long as shares of Preferred Stock are
outstanding, the composition of its portfolio will reflect guidelines
established by the rating agencies in connection with the Fund's receipt of a
rating for the Preferred Stock of at least "aa" from Moody's and at least AA
from S&P. Moody's and S&P issue ratings for various securities reflecting the
perceived creditworthiness of those securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be
sufficiently varied and will be of sufficient quality and amount to justify
investment grade ratings. The guidelines do not have the force of law but have
been adopted by the Fund in order to receive the above-described ratings for
shares of Preferred Stock, which ratings are generally relied upon by
institutional investors in purchasing such securities. The guidelines provide a
set of tests for portfolio composition and asset coverage that supplement (and
in some cases are more restrictive than) the applicable requirements under the
Investment Company Act.
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The Fund intends to maintain a portfolio value at least equal to the
discounted value of the assets in its portfolio which satisfies minimum values
set by each of the rating agencies. Upon any failure to do this, the Fund will
seek to alter the composition of its portfolio to satisfy the rating agency. To
the extent it is not able to do so in a timely basis, the Fund may redeem shares
of Preferred Stock in accordance with their terms.
CERTAIN PROVISIONS OF THE ARTICLES OF AMENDMENT
AND RESTATEMENT AND BY-LAWS
The Fund presently has provisions in its Articles that could have the
effect of limiting (i) the ability of other entities or persons to acquire
control of the Fund, (ii) the Fund's freedom to engage in certain transactions
or (iii) the ability of the Fund's Directors or stockholders to amend the
Articles or effect changes in the Fund's management. The provisions of the
Articles may be regarded as "anti-takeover" provisions. The By-Laws provide for
a staggered election of those Directors who are elected by the holders of Common
Stock, with the Directors divided into three classes, each having a term of
three years. Accordingly, only those Directors in one class may be changed in
any one year and it would require two years to change a majority of the Board of
Directors. This system of electing Directors may have the effect of maintaining
the continuity of management and, thus, make it more difficult for the Fund's
stockholders to change the majority of Directors.
Article Ninth of the Fund's Articles stipulates that a "fair price" be
paid for the Fund's shares in the event of a proposed merger or other business
combination which is not approved by either 75% of the Continuing Directors of
the Board of Directors (as defined therein) or the holders of 75% of the
outstanding shares of the Fund voting both as a single class and separately as
to each class (the "Fair Price Provision"). The stipulated "fair price" is the
higher of:
(i) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by an Interested
Party (as hereinafter defined) for any shares acquired by it (a) within
the two-year period immediately prior to the first public announcement
of the proposal of a business combination (the "Announcement Date"), or
(b) in the transaction in which an Interested Party first becomes the
beneficial owner of voting shares of the Fund (a "Threshold
Transaction"), whichever is higher; and
(ii) in the case of Common Stock, the NAV per share of Common Stock on
the Announcement Date or on the date of the Threshold Transaction,
whichever is higher, and in the case of any Preferred Stock, the
highest preferential amount per share to which the holders of shares of
a class of Preferred Stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Fund, regardless of whether the business combination to
be consummated constitutes such an event.
Article Ninth requires the same super-majority vote to amend the
Articles to "open-end" the Fund by making the Fund's Common Stock redeemable or
to adopt any stockholder proposal as to specific investment decisions with
respect to the Fund's assets. Stockholders of an open-end investment company may
require the company to redeem their shares in kind or in cash at any time
(except in
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certain circumstances authorized by the Investment Company Act) at their NAV
less any redemption charge. If shares are redeemed in kind, stockholders may
incur brokerage commissions. Conversion to open-end status would require the
redemption of all outstanding shares of Preferred Stock.
An "Interested Party" includes any person, other than an investment
company advised by the Investment Manager or any of its affiliates, which
proposes to enter into a business combination with the Fund.
CUSTODIAN, DIVIDEND PAYING AGENTS, TRANSFER AGENTS,
REGISTRARS AND AUCTION AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as the Fund's custodian for assets of the Fund held in
the United States and the Fund's dividend paying agent, transfer agent and
registrar for the Fund's Common Stock. The Chase Manhattan Bank acts as Auction
Agent for the Preferred Stock and also acts as transfer agent, registrar,
dividend disbursing agent and redemption agent for the Preferred Stock.
Rules adopted under the Investment Company Act permit the Fund to
maintain its foreign securities and cash in the custody of certain eligible
foreign banks and securities depositories. Pursuant to those rules, the Fund's
portfolio of securities and cash, when invested in foreign securities, are held
by its subcustodians designated by State Street Bank and Trust Company.
EXPERTS
The financial statements, insofar as they relate to the periods
through October 31, 1997, included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, the Fund's independent
accountants, given on the authority of said firm as experts in accounting and
auditing. The principal place of business of PricewaterhouseCoopers LLP is
located at 1177 Avenue of the Americas, New York, New York, 10036. The audit
services they provide include examination of the financial statements of the
Fund, services relating to filings by the Fund with the Commission and
consultation on matters related to the preparation and filing of tax returns.
DISTRIBUTION ARRANGEMENTS
Prudential Securities Incorporated, Smith Barney, Inc. and A.G.
Edwards & Sons, Inc. will act as Dealer Managers for the Offer (the "Dealer
Managers"). Under the terms and subject to the conditions contained in a Dealer
Manager Agreement, the Dealer Managers will provide financial advisory,
marketing and soliciting services. The Fund has agreed to pay the Dealer
Managers a fee for their financial advisory, marketing and soliciting services
equal to ______% of the aggregate Subscription Price for the Shares issued
pursuant to the Offer (the "Dealer Manager Fee") and to reimburse Prudential
Securities Incorporated for out-of-pocket expenses up to $_________. The Dealer
Managers will reallow to the broker-dealer designated on the related Exercise
Form a concession of _____% of the Subscription Price for each Share issued
pursuant to the Offer, provided that the designated broker-dealer has executed a
confirmation accepting the terms of the Soliciting Dealer Agreement relating to
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the Offer. The Dealer Manager Fee will be borne by the Fund and indirectly by
all of the Fund's stockholders, including those who do not exercise their
Rights.
The Fund will bear the expenses of the Offer, which will be paid from
the proceeds of the Offer. These expenses include, but are not limited to: the
expense of preparation and printing of the Prospectus for the Offer, the expense
of counsel and auditors in connection with the Offer, the out-of-pocket expenses
incurred by the Officers of the Fund in connection with the Offer and others.
The Fund and the Investment Manager will indemnify the Dealer Managers against
certain liabilities, including liabilities under the Securities Act and the
Investment Company Act.
Prudential Investments Fund Management LLC, an affiliate of Prudential
Securities Incorporated, acts as the Fund's Administrator and receives
compensation from the Fund in connection with its services. See "Administration
Agreement."
In the ordinary course of their businesses, Prudential Securities
Incorporated, other Dealer Managers, and their respective affiliates have in the
past engaged, and may in the future engage, in investment banking or financial
transactions with the Fund, the Investment Manager, the Investment Adviser and
their affiliates.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed on for the
Fund by Dechert Price & Rhoads, New York, New York, who will rely as to matters
of Maryland law on the opinion of Venable, Baetjer & Howard, LLP, Baltimore,
Maryland. Matters of Australian law will be passed on for the Fund by Stikeman,
Elliott, Sydney, Australia. Roy M. Randall, a partner of Stikeman, Elliott,
serves as Secretary of the Fund. Margaret A. Bancroft and Allan S. Mostoff,
members of Dechert Price & Rhoads, each serve as Assistant Secretaries of the
Fund. Certain legal matters will be passed on for the Dealer Managers by Brown &
Wood LLP, One World Trade Center, New York, New York.
FINANCIAL STATEMENTS
The Fund's audited financial statements and notes thereto appearing in
the October 31, 1997 Annual Report to Shareholders and the report thereon of
PricewaterhouseCoopers LLP, independent accountants, appearing therein, are
incorporated by reference. The Fund's unaudited financial statements and notes
thereto appearing in the April 30, 1998 Semi-Annual Report to Shareholders is
also incorporated by reference. These reports have previously been provided to
stockholders, however, the Fund will provide additional copies of these reports
on request without charge. All such requests should be directed to the Fund at
Gateway Center 3, at 100 Mulberry Street, Newark, New Jersey 07102.
ADDITIONAL INFORMATION
The Fund has filed with the Commission, Washington, DC 20549, a
Registration Statement under the Securities Act with respect to the Shares
offered hereby. Further information concerning these securities and the Fund may
be found in the Registration Statement, of which this Prospectus constitutes a
part, on file with the Commission. The Registration Statement may be inspected
without charge at the Commission's office in Washington, DC, and copies of all
or any part thereof may be obtained from that office after payment of the fees
prescribed by the Commission.
The Fund is subject to the informational requirements of the 1934 Act
and the Investment Company Act, and in accordance therewith files reports and
other information with the Commission. These reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
Washington, DC 20549 and the Commission's regional offices, including offices at
Seven World Trade Center, New York, New York 10048. Copies of this material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, DC 20549 at prescribed rates. Reports and other
information concerning the Fund may also be inspected at the offices of the
Exchange. The Commission maintains a Web site (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference into
this Prospectus and the Statement of Additional Information, and reports, proxy
and information statements and other information regarding registrants that file
- 87 -
<PAGE>
electronically with the Commission. In addition, reports, proxy and information
statements and other information concerning the Fund can be inspected at the
offices of the AMEX, 86 Trinity Place, New York, New York 10005.
The tabular and other statistical information set forth in this
Prospectus is, unless otherwise indicated, based upon or derived from public
official documents or information of the Australian or New Zealand governments,
its ministries, the Reserve Bank of Australia, the Reserve Bank of New Zealand,
SBC Australia Limited, the Australian Bureau of Statistics, the New Zealand
Institute of Economic Research, the Organization for Economic Cooperation and
Development, Bloomberg, Warburg Australia Bond Indicies, Warburg Dillon Read and
the publications Datastream and Main Economic Indicators.
- 88 -
<PAGE>
APPENDIX A
AUSTRALIAN ECONOMY
Certain information relating to Australia has been extracted from
various governmental and private publications as indicated herein. For a listing
of these publications, see "Additional Information" in the Prospectus.
OVERVIEW
The Commonwealth of Australia comprises an area of about 2,773,000
square miles - almost the same as that of the United States, excluding Alaska.
In December 1997, Australia's population was estimated to be approximately 18.6
million people.
The Commonwealth of Australia was formed as a federal union in 1901,
when six British colonies of New South Wales, Victoria, Queensland, South
Australia, Western Australia and Tasmania were united as states in a "Federal
Commonwealth" under the authority of the Commonwealth of Australia Constitution
Act enacted by the British Parliament.
Federal legislative powers in Australia are vested in the Federal
Parliament which consists of the Queen, the Senate and the House of
Representatives. The Queen is represented throughout Australia by the
Governor-General. The Senate and the House of Representatives are both elected
by the compulsory vote of all eligible persons. Under the Constitution, the
Parliament is empowered to make laws on certain specified matters such as
defense, external affairs, interstate and overseas trade and commerce, taxation,
currency and banking. Powers not conferred on the parliament remain with the
States subject to certain Constitutional limitations.
The executive power of the Commonwealth under the Constitution is
formally vested in the Governor-General. There is a Federal Executive Council to
advise the Governor-General in the government of Australia. This council is
comprised of the Prime Minister and other Federal Ministers of State, all of
whom belong to the party or coalition of parties which has a majority in the
House of Representatives. Such Ministers form the Government with the practical
result that executive power is exercised by the Prime Minister and other
Ministers.
Prior to World War II, the Australian economy was highly dependent on
the rural sector. The 1950's and 1960's saw strong growth in the economy and
diversification through developments in the mining sector. There have been some
significant structural changes in the past 20 years, with the tertiary sector
(i.e., all areas of the economy excluding agriculture, mining and manufacturing)
and the mining sector growing strongly. In 1996-97, the rural sector accounted
for approximately 4% of Gross Domestic Product ("GDP"), 5% of employment and 20%
of total exports of goods and services by value. During the same period, the
mining sector accounted for approximately 4% of GDP and 1% of employment, and
exports of mining commodities accounted for approximately 35% of exports by
value. The tertiary sector accounted
<PAGE>
for approximately 75% of GDP, approximately 76% of employment and around 24% of
exports by value during the period.
SELECTED ECONOMIC DATA
Domestic Economy. Since 1980-81, the Australian economy has recorded
average GDP growth of 3.2%. However, there were severe recessions in 1982-83 and
1990-91, with strong growth in the intervening years. Following the 1990-91
recession, economic activity accelerated with strong growth in private
consumption and housing investment. Concern about the possible inflation
consequences of strong growth prompted the Reserve Bank of Australia to raise
interest rates in the second half of 1994. The tightening in monetary policy saw
growth return to more sustainable levels. Annual GDP growth peaked at 6.6% in
the September quarter of 1994 and slowed to an annual rate of 1.4% in the March
quarter of 1997. Weaker economic growth during 1996 and early 1997, combined
with low inflation, encouraged the Reserve Bank of Australia to lower cash
rates, almost to the level before rates were increased in 1994. Easier credit
conditions promoted a reacceleration of economic growth driven mostly by
business investment spending and residential real estate activity. Growth
improved to 4-9% in the March quarter 1998, but with some signs of renewed
weakness in net exports. The table below shows GDP over the past five years.
GROSS DOMESTIC PRODUCT
($ in millions)
<TABLE>
<CAPTION>
For June to June Periods
1992/3 1993/4 1994/5 1995/6 1996/7
<S> <C> <C> <C> <C> <C>
GDP, income-based measure A$407,952 A$432,436 A$460,292 A$491,934 A$517,401
(current prices)
GDP, average measure (constant A$384,451 A$402,110 A$419,700 A$436,831 A$449,381
1989-90 prices)
% change over previous period 3.4% 4.6% 4.4% 4.1% 2.9%
(constant 1989-90 prices)
</TABLE>
Source: Australian Bureau of Statistics, Australian National Accounts (Cat. No.
5206-0).
Prices. Since 1980-81 Australian CPI inflation has averaged 5.6% with
a peak rate of 12.5% in September 1982. Inflation has been trending down since
this peak. Following the 1990-91 recession, CPI inflation fell to a low of 0.3%
in December 1992. As the economic recovery initially gathered pace, higher wages
and import prices began to filter through into the underlying inflation rate.
(The underlying inflation rate excludes seasonal and administered prices as well
as mortgage interest charges.) The "headline" CPI inflation rate (which includes
all relevant prices and represents the average inflation rate for the eight
Australian capital states) was also boosted by the increase in mortgage interest
charges. These inflation pressures reversed in
A-2
<PAGE>
1996 and 1997 as tighter monetary conditions impacted. CPI inflation fell to a
new low of -0.3% in the September quarter 1997.
For the year ended June 30, 1998, CPI inflation was 0.7% with the
underlying rate at 1.6%. In recent years, the Reserve Bank of Australia has
adopted a target for the underlying rate of 2-3% (averaged over a number of
years). Underlying annual inflation has been below target for five consecutive
quarters including the quarter ended June 30, 1998.
PRICES
Consumer Price Index % Change over Prior Period
-------------------- --------------------------
1993-94 110.4 1.8
1994-95 113.9 3.2
1995-96 118.7 4.2
1996-97 120.3 1.3
1997-98 120.3 0.0
Source: Australian Bureau of Statistics, Consumer Price Index (Cat. No. 6401.0).
Note: Indices used year-end June 30 figures; Consumer Price Index 1989-90=100,
weighted average of eight capital cities.
Foreign Trade and Balance of Payments. External trade plays an
important part in the Australian economy. In the five years ended June 30, 1997,
merchandise exports and imports in current prices, calculated on a balance of
payments basis, both averaged approximately 15% of GDP.
Australia has traditionally been a net importer of capital,
facilitating the development of a rich endowment of natural resources at a
faster pace than would have been possible if domestic savings were the only
source of investment funds. Australia has, therefore, traditionally run a
current account deficit.
Since 1980-81 the current account deficit has averaged 4.4% of GDP,
with significant cyclical variations - reflecting the state of the economy and
fluctuation in Australia's terms of trade. In 1994-95, the current account
deficit represented 6.3% of GDP, boosted by strong import demand (in part
reflecting the business investment recovery) and higher debt servicing costs. As
the economy slowed through 1996 and 1997, import growth slowed sharply, while
export performance stayed robust. The current account deficit represented a
below long-term average 3.4% of GDP in 1996-97. More recently, the current
account deficit has widened quite sharply again reflecting imports supported by
strong domestic demand and the effect of the Asian crisis on Australian exports.
The quarterly current account deficit has widened from a low of A$3.1 billion in
the June quarter 1997 to A$7.5 billion in the quarter ended March 31, 1998. The
following table shows the current account balance for the five years ended June
30, 1997.
A-3
<PAGE>
CURRENT ACCOUNT BALANCE
(Australian $ in millions)
<TABLE>
<CAPTION>
Exports of
Goods &
Exports of Imports of Services as
Goods & Services Goods & Services Goods & a % of
---------------- ---------------- Current
Services Imports of Invisibles Account
Balance Goods & Balance (2) Balance
A$M % Change (1) A$M % Change (1) A$M Services (1) A$M A$M
--- ------------ --- ------------ --- ------------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992-93 76,804 9.7 78,875 14.3 (2,071) 97.4 (13,152) (15,223)
1993-94 82,902 7.9 85,151 8.0 (2,249) 97.4 (14,182) (16,431)
1994-95 87,509 5.6 97,425 14.4 (9,916) 89.8 (18,951) (28,867)
1995-96 99,004 13.1 100,895 3.6 (1,891) 98.1 (19,933) (21,824)
1996-97 105,318 6.4 103,541 2.6 1,777 101.7 (19,308) (17,531)
</TABLE>
Source: Australian Bureau of Statistics, Balance of Payments and International
Investment Position (Cat. No. 5302.0).
- -------------------------
(1) Data may not be calculable due to rounding.
(2) Net total of invisible transactions, consisting primarily of interest,
profit and dividends on external assets and liabilities, and government
and other transfer payments.
Australia's net foreign debt as of March 31, 1998 was A$224.5 billion,
which is equivalent to approximately 42% of its GDP. In comparison, Australia's
net foreign debt as of March 31, 1997 was A$205.1 billion, which was
approximately 40% of its GDP.
Interest Rates. The following table sets forth certain historical
short-term Australian bank interest rates and interest rates for medium and
long-term Australian Government securities.
<TABLE>
<CAPTION>
INTEREST RATES
Unofficial 90-day Bank Bill Business Loan 3-Year Treasury 10-Year Treasury Bonds
Year (1) Cash Rate (2) Yield (3) Indicator Rate (4) Bonds (5) (5)
-------- ------------- --------- ------------------ --------- ---
<S> <C> <C> <C> <C> <C>
1994 4.75 5.45 9.00 8.60 9.65
1995 7.50 7.55 10.70 8.25 9.20
1996 7.50 7.60 10.80 8.35 8.90
1997 5.55 5.30 9.00 5.95 7.05
1998 5.05 5.35 8.05 5.25 5.60
</TABLE>
Source: Reserve Bank of Australia Bulletin, July 1998; Bloomberg.
- -------------------------
(1) June 30, unless otherwise indicated; all quoted rates are in percent
per annum terms.
(2) Average of daily 11:00 a.m. calls for the month.
(3) Average of daily figures for the week ended last Wednesday of the
month.
(4) Indicator rate on overdraft loans of A$100,000 or more by large
businesses.
(5) Assessed secondary market yield on the last business day of the month.
A-4
<PAGE>
The following table compares interest rates of Australian and U.S.
ten-year government bonds over the past five years on a quarter-end basis.
<TABLE>
<CAPTION>
COMPARISON OF INTEREST RATES OF U.S. AND AUSTRALIAN BONDS
(% per annum)
10-Year U.S. 10-Year Australian
Five Year Treasury Bonds Government Bonds
--------- -------------- -------------------
<S> <C> <C> <C>
1993............ Qtr. 1 6.02 7.78
2 5.78 7.39
3 5.38 6.84
4 5.79 6.68
1994............ Qtr. 1 6.74 7.95
2 7.32 9.64
3 7.60 10.32
4 7.82 10.04
1995............ Qtr. 1 7.20 9.83
2 6.20 9.21
3 6.18 8.58
4 5.57 8.22
1996............ Qtr. 1 6.33 8.90
2 6.71 8.79
3 6.70 7.80
4 6.42 7.37
1997............ Qtr. 1 6.90 8.01
2 6.50 7.06
3 6.10 6.13
4 5.74 6.04
1998............ Qtr. 1 5.65 5.75
2 5.45 5.55
</TABLE>
Source: Bloomberg GTIO Government and GACGIO Index.
<PAGE>
The following table compares the value of an Australian dollar per
U.S. dollar for the periods indicated.
EXCHANGE RATES (per US$)
At Month Ending A$
--------------- --
1991............. March 1.2900
June 1.3019
September 1.2508
December 1.3161
1992............ March 1.3014
June 1.3355
September 1.4006
December 1.4535
1993............ March 1.4168
June 1.4877
September 1.5497
December 1.4769
1994............ March 1.4269
June 1.3716
September 1.3526
December 1.2873
1995............ March 1.3736
June 1.4085
September 1.3236
December 1.3441
1996............ March 1.2832
June 1.2674
September 1.2620
December 1.2555
1997............ March 1.2715
June 1.3414
September 1.3893
December 1.5321
1998............ March 1.5074
April 1.5387
May 1.6036
June 1.6300
July 1.6359
Source: Reserve Bank of Australia Bulletin, July Bulletins.
A-6
<PAGE>
Public Finance. The following table summarizes the outstanding
Australian Commonwealth Government debt.
GOVERNMENT SECURITIES ON ISSUE AT JUNE 30, 1993 TO 1997
(Australian $ in millions)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
77,470 91,710 106,205 110,511 111,135
Source: Reserve Bank of Australia Bulletin, June 1998.
The following table summarizes Australian Commonwealth Government
budget transactions for the five fiscal years ended June 30, 1998. The
Government currently expects an underlying surplus (net of asset sales and
abnormal one-off accounting transactions) of A$2.7 billion for the 1998-99
financial year, the first underlying surplus in 8 years. The Coalition
Government has focused budgetary policy strongly on returning the Budget to
underlying surplus. The headline budget (including asset sales and abnormal
one-off accounting transactions) returned to surplus in 1997-98, helped by
substantial asset sales.
SUMMARY OF AUSTRALIAN GOVERNMENT
UNDERLYING BUDGET TRANSACTIONS
(Australian $ in millions)
Total Total Surplus/
Revenue Outlays Deficit
------- ------- --------
1993-94 100,747 117,814 (17,067)
1994-95 110,430 123,563 (13,133)
1995/96 121,688 131,966 (10,278)
1996/97 131,031 135,933 (4,902)
1997/98 (Estimate) 135,448 136,603 (1,155)
1998/99 (Forecast) 144,258 141,570 2,688
Source: Budget Related paper No. 1, 1998-99; Reserve Bank of Australia Bulletin,
July 1998.
AUSTRALIAN DEBT SECURITIES
Primary Market. Australian semi-government bonds and corporate notes
and debentures are issued through tender panels, private placements or by direct
solicitation to the public through prospectuses registered with the Australian
Securities and Investments Commission of Australian States and Territories (the
regulatory authority which administers comprehensive laws relating to, among
other things, prospectus disclosure requirements) and are not generally listed
on the Australian Stock Exchange ("ASX"). The Commonwealth and State Governments
of Australia
A-7
<PAGE>
and their agencies and instrumentalities issue bonds and notes which are
generally listed on the ASX. Australian corporations and Government entities
also issue Australian dollar-denominated bonds and notes in the Euromarket.
Secondary Market. As with the U.S. secondary market, most trading in
Australian debt securities takes place off the ASX. Trading in Eurobonds also
takes place off the European stock exchanges. Certain major commercial banks,
stockbrokers and other financial institutions have been designated by the
Reserve Bank as reporting bond dealers through which the Reserve Bank usually
conducts transactions in Commonwealth Government securities with maturities of
more than one year. In addition, commercial banks and investment banking
institutions operate an unofficial secondary market in the debt securities of
corporations and Government entities.
Short-Term Debt Instruments. Short-term marketable debt instruments
are usually issued with a maturity period of 90 to 180 days. These instruments
include notes and bills from Government entities, bank and commercial bills,
promissory notes, and certificates of deposit. Short-term non-marketable debt
instruments include deposits with banks or merchant banks on a fixed-term basis,
varying from 24 hours to 365 days. These securities are traded by commercial
banks and investment banking institutions on an unofficial secondary market.
Recent data on the Australian debt securities market is summarized in
the table below.
AUSTRALIAN DEBT SECURITIES
(Australian $ in billions as of April 30, 1998)
Nominal Value Market Value
Commonwealth Government... 72,662 83,718
Semi-government........... 46,396 51,944
Corporate................. 8,268 9,441
------ ------
Total... A$127,686 A$145,103
Source: Warburg Australia Bond Indices, April 1998
<PAGE>
APPENDIX B
ASIAN ECONOMIC DATA
Certain information relating to the Asian countries has been extracted
from various private publications as indicated herein. For a listing of these
publications, see "Additional Information" in the Prospectus.
The economies of Asian Countries are in different stages of
development. Hong Kong and Singapore have well developed industrial, financial
and service sectors, but limited natural resources. Korea has a large
manufacturing sector, but relies heavily on imports of raw materials. The
economies of Indonesia, Malaysia, the Philippines and Thailand are generally
less developed than Hong Kong, Korea and Singapore, but these countries have
higher levels of natural resources. Of the Asian Countries, the economies of
China and India are generally the least developed, with large agricultural
sectors, but there are geographic regions in each of these countries which have
much higher levels of development.
SOVEREIGN DEBT CREDIT RATINGS
The following table sets forth the credit ratings given by S&P and
Moody's to the long-term sovereign debt of certain countries in which the Fund
may invest.
1
S&P AND MOODY'S CREDIT RATINGS
S&P Moody's (*)
Japan.................. AAA Aaa (AAA) ~/
Singapore.............. AAA Aa1 (AA+)
New Zealand............ AA+ Aa1 (AA+) ~/
Taiwan................. AA+ Aa3 (AA-)
Australia.............. AA /~ Aa2 (AA)
Hong Kong.............. A+ ~/ A3 (A-) ~/
China.................. BBB+ ~/ A3 (A-) ~/
Malaysia............... BBB+ ~/ Baa2 (BBB) ~/
Thailand............... BBB- ~/ =============
======== Ba1 (BB+)
South Korea............ BB+ Bal (BB+)
Philippines............ BB+ ~/ Ba1 (BB+)
India.................. BB+ ~/ Ba2 (BB)
*S&P equivalent
/~ - rating agency has a positive outlook on country
~/ - rating agency has a negative outlook on country
========== - below investment grade
- ---------------------
1 Long-term foreign sovereign rating
<PAGE>
ASIAN ECONOMIES
In general, the economies of Asian Countries have grown at a relatively
high rate during 1988 to 1997. As the following table shows, most of the Asian
Countries in which the Fund may invest grew faster than did Australia and New
Zealand between 1988 and 1997. On average, for this time period, annual real GDP
growth for Asian Countries was 6.8% as compared to the average annual real GDP
growth for Australia and New Zealand of 2.5%. Of the Asian Countries, China was
the fastest growing economy followed by Malaysia and Singapore. There can be no
assurance, however, that the economies of Asian Countries will continue to grow
at relatively high rates.
<TABLE>
<CAPTION>
AVERAGE ANNUAL REAL GDP GROWTH
(% change over previous year)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 AVERAGE
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA 3.9 3.3 -0.1 -0.1 3.5 3.6 5.6 3.3 3.6 3.1 3.0
NEW ZEALAND -0.3 0.9 -0.3 -1.7 0.9 5.1 6.0 3.9 3.1 2.3 2.0
CHINA 11.3 4.1 3.8 9.2 14.2 13.5 12.7 10.5 9.7 8.8 9.8
HONG KONG 8.0 2.6 3.4 5.1 6.3 6.1 5.3 4.8 4.9 5.3 5.2
INDIA 9.9 6.6 5.7 0.4 5.3 3.9 7.2 7.2 7.5 5.0 5.9
INDONESIA 5.8 7.5 7.1 7.0 6.5 6.5 7.8 8.2 8.0 4.8 6.9
JAPAN 6.2 4.8 5.1 3.8 1.0 0.3 0.6 1.5 3.9 0.8 2.8
MALAYSIA 8.8 9.2 9.7 8.6 7.8 8.3 9.2 9.6 8.6 7.8 8.8
PHILIPPINES 6.8 6.2 3.0 -0.6 0.3 2.1 4.3 4.8 5.5 5.1 3.8
SINGAPORE 11.6 9.6 9.0 7.0 6.2 10.4 10.2 8.9 7.0 7.8 8.8
SOUTH KOREA 11.3 6.4 9.5 9.1 5.1 5.8 8.6 9.0 7.2 5.6 7.8
TAIWAN 7.8 8.2 5.4 7.6 6.8 6.3 6.5 6.0 5.7 6.7 6.7
THAILAND 13.3 12.2 11.2 8.5 8.1 8.3 8.7 8.7 6.7 3.7 8.9
</TABLE>
Source: Warburg Dillon Read; Reserve Bank of New Zealand
<PAGE>
EXCHANGE RATES
The following table sets forth the U.S. dollar exchange rates for the
last ten years for the currencies of certain countries in which the Fund may
invest. As the following table shows, Asian Currencies were relatively stable
during the period 1988 to 1996. During the last six months of 1997, however,
many of the Asian currencies experienced significant depreciation with the most
extreme movements occurring in Indonesia, South Korea, Thailand and Malaysia.
US$ EXCHANGE RATE (PERIOD END)
<TABLE>
<CAPTION>
Currencies
(measured
against one 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
U.S. dollar) ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA (A$) 0.86 0.79 0.77 0.76 0.69 0.68 0.78 0.74 0.80 0.65
NEW ZEALAND (NZ$) 0.63 0.60 0.59 0.54 0.52 0.56 0.64 0.65 0.71 0.59
CHINA 3.72 3.77 4.78 5.32 5.51 5.76 8.62 8.32 8.30 8.27
HONG KONG 6.49 7.78 7.82 7.81 7.79 7.75 7.81 7.81 7.73 7.75
INDIA 15.05 16.94 18.12 25.88 30.80 31.37 31.37 34.33 35.85 39.20
INDONESIA 1,725.00 1,784.00 1,889.00 1,984.01 2,063.50 2,102.62 2,196.75 2,283.00 2,363.00 5,402.50
JAPAN 124.98 143.75 135.80 124.80 124.80 111.61 99.70 103.40 115.70 130.58
MALAYSIA 2.71 2.70 2.70 2.72 2.61 2.70 2.56 2.54 2.53 3.88
PHILIPPINES 20.70 21.77 27.20 26.15 23.60 28.18 24.42 26.20 26.30 39.50
SINGAPORE 1.95 1.90 1.74 1.62 1.64 1.60 1.46 1.41 1.40 1.68
SOUTH KOREA 684.10 679.60 716.40 760.80 788.40 808.10 787.70 775.75 840.90 1,600.00
TAIWAN 28.17 26.17 27.11 25.75 25.40 26.63 26.24 27.29 27.49 32.55
THAILAND 25.19 25.61 25.30 25.05 25.49 25.48 25.13 25.20 25.66 47.00
</TABLE>
*China: Official Rate before 1989, Swap Rate 1989-93, Unified Rate from January
1994
Source: Warburg Dillon Read; Reserve Bank of New Zealand
<PAGE>
INTEREST RATES
The following table sets forth certain historical three-month money
market interest rates for certain countries in which the Fund may invest. As the
following table shows, domestic interest rates in most Asian Countries rose
sharply in 1997. Central banks have maintained tight monetary conditions in an
attempt to mitigate pressure on their currencies and to slow credit growth and
to contain inflation. On average, at the end of 1997, Asian three-month money
market rates were approximately 10.9% compared to Australia and New Zealand
which averaged 6.6%. There can be no assurance, however, that Asian Countries
will maintain such high rates.
<TABLE>
<CAPTION>
THREE-MONTH MONEY MARKET INTEREST RATES (END PERIOD)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTRALIA 15.00 17.00 11.80 7.50 5.80 4.80 8.30 7.50 6.00 5.00
NEW ZEALAND 14.18 14.10 13.90 10.00 6.70 6.30 9.56 8.59 8.08 8.30
CHINA --- --- --- --- --- --- --- --- 11.80 9.00
HONG KONG 9.20 8.60 8.00 3.90 4.20 3.40 6.40 5.90 5.60 9.30
INDIA 9.80 10.60 13.60 13.20 11.20 7.80 9.40 13.00 8.30 7.20
INDONESIA 18.00 14.50 19.90 19.60 13.80 8.20 14.40 18.00 12.80 18.80
JAPAN 4.40 6.30 8.40 6.00 3.70 2.50 2.50 0.40 0.40 0.80
MALAYSIA 4.30 5.20 7.60 8.10 8.00 6.40 5.50 6.30 7.40 9.20
PHILIPPINES 16.70 20.50 26.50 21.10 14.50 15.90 10.70 12.30 11.70 18.10
SINGAPORE 5.30 5.60 5.30 3.50 2.20 3.30 4.40 2.40 3.40 7.00
SOUTH KOREA 15.00 15.30 15.70 17.70 15.80 12.40 15.50 11.70 12.80 14.80
TAIWAN 5.70 9.00 7.70 7.60 8.00 6.90 8.00 5.70 5.60 7.30
THAILAND 10.90 11.80 14.90 10.20 8.00 4.90 8.40 10.20 9.60 15.90
</TABLE>
Source: Warburg Dillon Read; Bloomberg
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
=============================================================== =======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN _____________
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY SHARES OF COMMON STOCK
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE
INVESTMENT ADVISER OR ANY OF THE DEALER MANAGERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE THE FIRST AUSTRALIA PRIME
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE INCOME FUND, INC.
SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY SUCH PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ISSUABLE UPON EXERCISE OF
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE NON-TRANSFERABLE RIGHTS TO SUBSCRIBE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY FOR SUCH SHARES OF COMMON STOCK
IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. HOWEVER, IF ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY
LAW TO BE DELIVERED, THE PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY. ---------------
PROSPECTUS
------------------------------- ---------------
TABLE OF CONTENTS
Page
Prospectus Summary............................................
Fund Expenses.................................................
Financial Highlights..........................................
The Offer.....................................................
Use of Proceeds...............................................
Description of Common Stock...................................
The Fund......................................................
Investment Objective and Policies; Investment
Restrictions.................................................. PRUDENTIAL SECURITIES INCORPORATED
Risk Factors and Special Considerations....................... SALOMON SMITH BARNEY
Portfolio Composition......................................... A.G. EDWARDS & SONS, INC.
Portfolio Securities..........................................
Management of the Fund........................................
Management Agreement and Advisory Agreement...................
Administration Agreement......................................
Portfolio Transactions and Brokerage..........................
Net Asset Value of Common Stock...............................
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan.........................
Taxation......................................................
Capital Stock.................................................
Certain Provisions of the Articles
of Amendment and Restatement and By-Laws....................
Custodian, Dividend Paying Agents, Transfer
Agents, Registrars and Auction Agent........................
Experts.......................................................
Distribution Arrangements.....................................
Legal Matters.................................................
Additional Information........................................
Financial Statements..........................................
Report of Independent Accountants.............................
Appendix A.................................................A-1
Appendix B.................................................B-1 ___________, 1998
=============================================================== =======================================================
</TABLE>
<PAGE>
PART B
NOT APPLICABLE
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS:
Audited
(incorporated by reference in the Statement of
Additional Information from the Registrant's
Annual Report to Shareholders dated as of
October 31, 1997 filed with the Securities
and Exchange Commission on January 13, 1998)
(i) Portfolio of Investments as of October 31, 1997
(ii) Statement of Assets and Liabilities as of October 31, 1997
(iii)Statement of Operations for the fiscal year ended October 31,
1997
(iv) Statement of Changes in Net Assets for the fiscal years ended
October 31, 1997 and October 31, 1996
(v) Notes to the Financial Statements
(vi) Financial Highlights
(vii) Report of Independent Accountants
Unaudited
(incorporated by reference in the Statement of
Additional Information from the Registrant's
Semi-Annual Report to Shareholders dated as of
April 30, 1998 filed with the Securities
and Exchange Commission on July 9, 1998)
(i) Portfolio of Investments as of April 30, 1998
(ii) Statement of Assets and Liabilities as of April 30, 1998
(iii) Statement of Operations for the six months ended April 30, 1998
(iv) Statement of Cash Flows for the six months ended April 30, 1998
(v) Statement of Changes in Net Assets for the six months ended April
30, 1998 (unaudited) and fiscal year ended October 31, 1997
(audited)
(vi) Notes to the Financial Statements
(vii)Financial Highlights for the six months ended April 30, 1998
(unaudited) and for each of the five fiscal years in the period
ended October 31, 1997 (audited)
2. EXHIBITS:
(a) (1) Articles of Amendment and Restatement dated December 14,
1988. (Previously filed as Exhibit (1)(a)(3) to Amendment
No. 6 to Registrant's Registration Statement on Form N-2,
File No. 811-4611 (the "Original Registration Statement"))*
(a) (2) Article of Amendment dated May 29, 1991 (Previously
filed as Exhibit (1)(a)(6) to Amendment No. 12 to the
Original Registration Statement)*
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(a) (3) Article of Amendment dated April 25, 1996. (Previously
filed as Exhibit (1)(a)(3) to Amendment No. 27 to Original
Registration Statement.)*
(a) (4) Article of Amendment dated July 28, 1997.
(b) (1) By-Laws as amended through December 21, 1988.
(Previously filed as Exhibit 2 to Amendment No. 6 to
Original Registration Statement.)*
(2) Amendment dated January 20, 1991 to the By-Laws of
Registrant. (Previously filed as Exhibit 2(a)(8) to
Amendment No. 6 to Original Registration Statement.)*
(3) By-Laws as amended through May 8, 1998.
(c) Inapplicable.
(d) (1) Specimen certificate representing shares of Common Stock
(U.S. $.01 par value). (Previously filed as Exhibit 4 to
Pre-Effective Amendment No. 2 to Original Registration
Statement.)*
(2) Form of Subscription Certificate.**
(3) Form of Notice of Guaranteed Delivery.**
(4) Form of DTC Participant Over-subscription Exercise Form.**
(5) Form of Beneficial Owner Certification.**
(6) Form of Subscription Rights Agency Agreement.**
(e) Dividend Reinvestment and Cash Purchase Plan. (Previously
filed as Exhibit (e) to Amendment No. 21 to Original
Registration Statement.)*
(f) Inapplicable.
(g) (1) Management Agreement with EquitiLink International
Management Limited ("EIML") and EquitiLink Australia Limited
("EAL") dated February 1, 1990. (Previously filed as Exhibit
6(a)(4) to Amendment No. 10 to Original Registration
Statement.)*
(2) Advisory Agreement with EIML and EAL dated December 15,
1992. (Previously filed as Exhibit (g)(2) to Amendment No.
18 to Original Registration Statement.)*
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(h) Form of Dealer Manager Agreement among the Registrant, EIML,
EAL, EquitiLink Limited, and Prudential Securities
Incorporated, Salomon Smith Barney and A.G. Edwards &
Sons, Inc.**
(i) Inapplicable.
(j) (1) Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street") dated April
11, 1986. (Previously filed as Exhibit (9)(A) to Pre-
Effective Amendment No. 2 to Original Registration
Statement.)*
(2) Amendment No. 1 to Custody Agreement between Registrant and
State Street. (Previously filed as Exhibit 9(a)(2) to
Amendment No. 1 to Original Registration Statement.)*
(3) Amendment No. 2 to Custody Agreement between the Registrant
and State Street dated November 26, 1986. (Previously filed
as Exhibit 9(a)(3) to Amendment No. 1 to Original
Registration Statement.)*
(4) Sub-custodian Agreement between State Street London Limited
and State Street Bank and Trust Company dated as of November
13, 1985. (Previously filed as Exhibit (9)(D) to
Pre-Effective Amendment No. 2 to Original Registration
Statement.)*
(5) Sub-custodian Agreement between State Street Bank and Trust
Company and Westpac Banking Corporation dated as of January
1, 1993. (Previously filed as Exhibit (j)(5) to Amendment
No. 23 to the Original Registration Statement.)*
(6) Sub-custodian Agreement between State Street Bank and Trust
Company and ANZ Banking Group (New Zealand) Limited dated as
of May 11, 1993. (Previously filed as Exhibit (j)(6) to
Amendment No. 23 to the Original Registration Statement.)*
(k) (1) Transfer Agency Agreement between the Registrant and
State Street dated April 11, 1986. (Previously filed as
Exhibit 10(A) to Pre-Effective Amendment No. 2 to Original
Registration Statement.)*
(2) Administration Agreement between the Registrant and
Prudential Mutual Fund Management, Inc. dated December 9,
1988. (Previously filed as Exhibit 10(c)(2) to Amendment No.
6 to Original Registration Statement.)*
(l) (1) Opinion and Consent of Dechert Price & Rhoads.**
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(2) Opinion of Venable, Baetjer and Howard, LLP.**
(m) Inapplicable.
(n) Opinion and Consent of Independent Accountants.**
(o) Inapplicable
(p) Subscription Agreement between the Registrant and EIML dated
April 14, 1986. (Previously filed as Exhibit 14 to Original
Registration Statement.)*
(q) Inapplicable
(r) (1) Financial Data Schedule for year ended October 31, 1997.
(2) Financial Data Schedule for six months ended April 30, 1998.
(s) (1) Powers of attorney.
(2) Certified copy of Board resolutions.**
- ----------
* Incorporated by reference herein.
** To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Dealer Manager Agreement to be filed as Exhibit (h).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses to be incurred in
connection with the offering described in the Registration Statement:
Registration fees.................................... $________
Printing............................................. $________
Fees and expenses of qualification under state
securities laws (including fees of counsel)........ $________
Legal fees and expenses.............................. $________
Reimbursement of Dealer Manager expenses............. $________
Auditing fees and expenses........................... $________
American Stock Exchange listing fees................. $________
Pacific Stock Exchange listing fees.................. $________
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Subscription Agent fees and expenses................. $________
Information Agent fees and expenses.................. $________
Engraving and printing stock certificates............ $________
Miscellaneous........................................ $________
---------
Total $____________
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES (AS OF JULY 31, 1998)
Title of Class Number of Record Holders
Common Stock ($.01 par value
per share)....................................... 18,221
Auction Market Preferred Stock, Series A
($.01 par value per share)....................... 1
Auction Market Preferred Stock, Series B
($.01 par value per share)....................... 1
Auction Market Preferred Stock, Series C
($.01 par value per share)...................... 1
Auction Market Preferred Stock, Series D
($.01 par value per share)........................ 1
Auction Market Preferred Stock, Series E
($.01 par value per share)........................ 1
Auction Market Preferred Stock, Series F
($.01 par value per share)........................ 1
Auction Market Preferred Stock, Series G
($.01 par value per share)........................ 1
Auction Market Preferred Stock, Series H
($.01 par value per share)........................ 1
Auction Market Preferred Stock, Series I
($.01 par value per share)........................ 1
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
the state in which the Registrant was organized, empowers a corporation, subject
to certain limitations, to indemnify its Directors against expenses (including
attorneys' fees, judgments, fines and certain settlements) actually and
reasonably incurred by them in connection with any suit or proceeding to which
they are a party unless it is established that (i) the director's act or
omission was material to the matter giving rise to the proceeding and (1) was
committed in bad faith, or (2) was the result
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<PAGE>
of active and liberate dishonesty, or (ii) the director actually received
improper personal benefit in money, property or services, or (iii) with respect
to a criminal action or proceeding, the director had reasonable cause to believe
that the action or omission was unlawful. Article IX, of the Registrant's
By-Laws (as amended through January 20, 1991 and currently in effect) provides:
Article IX. Indemnification. The Corporation shall indemnify (a) its
Directors and officers, whether serving the Corporation or at its request any
other entity, to the full extent required or permitted by (i) the General Laws
of the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law, and (ii)
the Investment Company Act of 1940, as amended, and (b) other employees and
agents to such extent as shall be authorized by the Board of Directors and be
permitted by law. The foregoing rights of indemnification shall not be exclusive
of any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
law.
Reference is made to Section 7 of the Dealer Manager Agreement filed as
Exhibit (h) to this Registration Statement for provisions relating to
indemnification of the Dealer Managers.
Reference is made to Section 7 of the Dealer Manager Agreement filed as
Exhibit (h) to this Registration Statement and to Section 3 of the Advisory
Agreement filed as Exhibit (g)(2) herewith for provisions relating to limitation
of liability of the Investment Manager and Investment Adviser. Reference is made
to Section 3 of the same Advisory Agreement for provisions relating to
limitation of liability of the Investment Adviser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE>
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Information as to the Directors and officers of the Investment Manager
and the Investment Adviser is included in their respective Forms ADV filed with
the Commission and is incorporated herein by reference thereto.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
Prudential Investments EquitiLink International State Street Bank and
Fund Management LLC Management Limited Trust Company
100 Mulberry Street Union House 225 Franklin Street
Gateway Center 3 Union Street Boston, MA 02110
New York, New York 10292 St. Helier, Jersey For all other records
For records pursuant to For records pursuant to
Rule 31a-1(b)(4) Rule 31a-1(b)(5),(6),(9),(10)
and (11) and Rule 31a-1(f)
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(1) The Registrant undertakes to suspend offering of its shares until it
amends its prospectus if (a) subsequent to the effective date of its
Registration Statement, the NAV of its shares declines more than 10
percent from its NAV as of the effective date of the Registration
Statement or (b) the NAV increases to an amount greater than its net
proceeds as stated in the prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) (a) The Registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) The Registrant hereby undertakes that for the purposes of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the
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<PAGE>
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of New York on this 19th day of August, 1998.
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
*
-----------------------
Brian M. Sherman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
President and Director 8/19/98
* (Principal Executive Officer)
-----------------------
Brian M. Sherman
Treasurer and Director 8/19/98
* (Principal Financial and
------------------------
David Manor Accounting Officer)
* Director 8/19/98
-----------------------
Anthony E. Aaronson
* Director 8/19/98
-----------------------
Neville Miles
* Director 8/19/98
-----------------------
Sir Arthur Roden Cutler
* Director 8/19/98
------------------------
David Elsum
Director 8/19/98
------------------------
Rt. Hon. Malcolm Fraser
* Director 8/19/98
-----------------------
Laurence S. Freedman
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* Director 8/19/98
-----------------------
Michael R. Horsburgh
* Director 8/19/98
-----------------------
Harry A. Jacobs, Jr.
* Director 8/19/98
-----------------------
Howard A. Knight
* Director 8/19/98
-----------------------
Roger C. Maddock
* Director 8/19/98
-----------------------
William J. Potter
* Director 8/19/98
-----------------------
Peter D. Sacks
* Director 8/19/98
-----------------------
John T. Sheehy
* Director 8/19/98
-----------------------
Marvin Yontef
*By
-------------------------------
Margaret A. Bancroft
as Attorney-in-Fact
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<PAGE>
EXHIBIT LIST
(a)(4) Article of Amendment dated July 28, 1997.
(b)(3) By-Laws as amended through May 8, 1998.
(r)(1) Financial Data Schedule for year ended October 31, 1997.
(r)(2) Financial Data Schedule for six months ended April 30, 1998.
(s)(1) Powers of Attorney.
(s)(2) Certified Board resolution.
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THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
ARTICLES OF AMENDMENT
THE FIRST AUSTRALIA PRIME INCOME FUND, INC., a Maryland corporation having
its principal Maryland office in Baltimore, Maryland (the "Corporation"),
certifies that:
FIRST: Immediately prior to the filing of these Articles of Amendment, the
total number of shares of all classes which the Corporation had the authority to
issue was 300,000,000 shares of stock with an aggregate par value of $3,000,000
divided into two classes of shares: 200,000,000 shares of Common Stock, $0.01
par value per share and 100,000,000 shares of Preferred Stock, $0.01 par value
per share.
SECOND: The first sentence of Article Fifth of the Charter of the
Corporation is hereby amended to read:
"The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 500,000,000 shares with an aggregate par
value of $5,000,000, divided into two classes, of 400,000,000 shares of
Common stock, $0.01 par value per share ("Common Stock") and of 100,000,000
shares of Preferred Stock, $0.01 par value per share ("Preferred Stock")."
THIRD: The amendment of the Charter of the Corporation as set forth above
was advised by the Board of Directors at a meeting duly held on December 11,
1996 and was approved by the requisite affirmative vote of the stockholders of
the Corporation entitled to vote on the amendment at a meeting duly held on
March 13, 1997.
FOURTH: The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption for both classes of shares will not be changed by these
Articles of Amendment.
FIFTH: The undersigned Chairman acknowledges that these Articles of
Amendment are the act of the Corporation and that to the best of his knowledge,
information and belief all matters and facts set forth herein relating to the
authorization and approval of the Articles of Amendment are true in all material
respects and that this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its Chairman and
attested to by its Assistant Secretary on this 28th day of July, 1997.
THE FIRST AUSTRALIA PRIME INCOME FUND,
INC.
ATTEST By: /S/ Laurence S. Freedman
-----------------------------------
Laurence S. Freedman
/S/ Margaret A. Bancroft Chairman
- -------------------------
Margaret A. Bancroft
Assistant Secretary
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
A Maryland Corporation
BY-LAWS
as amended through May 8, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL...................3
Section 1. Name.....................................................3
Section 2. Principal Offices........................................3
Section 3. Seal.....................................................3
ARTICLE II STOCKHOLDERS.......................................................3
Section 1. Place of Meeting.........................................4
Section 2. Annual Meetings..........................................4
Section 3. Special Meetings.........................................4
Section 4. Notice of Meetings.......................................5
Section 5. Quorum, Adjournment of Meetings..........................5
Section 6. Voting and Inspectors....................................6
Section 7. Stockholders Entitled to Vote............................7
Section 8. Validity of Proxies, Ballots.............................7
Section 9. Conduct of Stockholders' Meetings........................7
Section 10. Action without Meeting...................................8
ARTICLE III BOARD OF DIRECTORS................................................9
Section 1. Powers...................................................9
Section 2. Number and Term..........................................9
Section 3. Election................................................11
Section 4. Vacancies and Newly Created Directorships...............11
Section 5. Removal.................................................12
Section 6. Place of Meeting........................................13
Section 7. Annual and Regular Meetings.............................13
Section 8. Special Meetings........................................14
Section 9. Waiver of Notice........................................14
Section 10. Quorum and Voting.......................................14
Section 11. Action Without a Meeting................................14
Section 12. Compensation of Directors...............................15
ARTICLE IV COMMITTEES........................................................15
Section 1. Organization............................................15
Section 2. Proceedings and Quorum..................................15
ARTICLE V OFFICERS...........................................................16
Section 1. General.................................................16
Section 2. Election, Tenure and Qualifications.....................16
Section 3. Removal and Resignation.................................16
Section 4. President...............................................17
Section 5. Vice President..........................................17
Section 6. Treasurer and Assistant Treasurers......................17
Section 7. Secretary and Assistant Secretaries.....................18
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Section 8. Subordinate Officers....................................19
Section 9. Remuneration............................................19
Section 10. Surety Bonds............................................19
ARTICLE VI CAPITAL STOCK.....................................................20
Section 1. Certificates of Stock...................................20
Section 2. Transfer of Shares......................................20
Section 3. Stock Ledgers...........................................20
Section 4. Transfer Agents and Registrars..........................21
Section 5. Fixing of Record Date...................................21
Section 6. Lost, Stolen or Destroyed Certificates..................21
ARTICLE VII FISCAL YEAR AND ACCOUNTANT.......................................22
Section 1. Fiscal Year.............................................22
Section 2. Accountant..............................................22
ARTICLE VIII CUSTODY OF SECURITIES...........................................22
Section 1. Employment of a Custodian...............................22
Section 2. Termination of Custodian Agreement......................22
ARTICLE IX INDEMNIFICATION...................................................23
ARTICLE X AMENDMENTS.........................................................24
Section 1. General.................................................24
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<PAGE>
BY-LAWS
OF
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
(A MARYLAND CORPORATION)
as amended through May 8, 1998
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
The name of the Corporation is The First Australia Prime Income Fund, Inc.
Principal Offices. The principal office of the Corporation in the State of
Maryland shall be located in Baltimore, Maryland. The Corporation may, in
addition, establish and maintain such other offices and places of business as
the Board of Directors may, from time to time, determine.
Seal. The corporate seal of the Corporation shall be circular in form and shall
bear the name of the Corporation, the year of its incorporation, and the word
"Maryland." The form of the seal shall be subject to alteration by the Board of
Directors and the seal may be used by causing it or a facsimile to be impressed
or affixed or printed or otherwise reproduced. Any officer or Director of the
Corporation shall have authority to affix the corporate seal of the Corporation
to any document requiring the same.
ARTICLE II
STOCKHOLDERS
Place of Meeting. All meetings of the stockholders shall be held at the
principal office of the Corporation in the State of Maryland or at such other
place within the United States as
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<PAGE>
may from time to time be designated by the Board of Directors and stated in the
notice of such meeting.
Annual Meetings. An annual meeting of stockholders for election of Directors and
the transaction of such other business as may properly come before the meeting
shall be held at such time and place within the United States as the Board of
Directors, or any duly constituted committee of the Board, shall select between
February 25th and March 25th; provided, however, that the date to be selected
for the annual meeting to be held in 1991 shall be between April 2 and May 3;
and provided, further, that the date to be selected for the annual meeting to be
held in 1998 shall be between April 25 and May 25.
Special Meetings. Special meetings of stockholders may be called at any time by
the President or a majority of the Board of Directors and shall be held at such
time and place as may be stated in the notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary
upon receipt of the written request of the holders of shares entitled to not
less than 25% of all the votes entitled to be cast at such meeting, provided
that (1) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (2) the stockholders requesting such meeting shall
have paid to the Corporation the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such stockholders. No special meeting shall be called upon the request of
stockholders to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
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<PAGE>
Notice of Meetings. The Secretary shall cause written or printed notice of the
place, date and hour, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, to be given, not less than 10 and not
more than 90 days before the date of the meeting, to each stockholder entitled
to vote at, or entitled to notice of, such meeting by leaving the same with such
stockholder or at such stockholder's residence or usual place of business or by
mailing it, postage prepaid, and addressed to such stockholder at his address as
it appears on the records of the Corporation at the time of such mailing. If
mailed, notice shall be deemed to be given when deposited in the United States
mail addressed to the stockholder as aforesaid. Notice of any stockholders'
meeting need not be given to any stockholder who shall sign a written waiver of
such notice either before or after the time of such meeting, which waiver shall
be filed with the records of such meeting, or to any stockholder who is present
at such meeting in person or by proxy.
Quorum, Adjournment of Meetings. The presence at any stockholders' meeting, in
person or by proxy, of stockholders entitled to cast a majority of the votes
entitled to be cast shall be necessary and sufficient to constitute a quorum for
the transaction of business. The holders of a majority of shares entitled to
vote at the meeting and present in person or by proxy, whether or not sufficient
to constitute a quorum, or, any officer present entitled to preside or act as
Secretary of such meeting may adjourn the meeting without determining the date
of the new meeting or from time to time without further notice to a date not
more than 120 days after the original record date. Any business that might have
been transacted
5
<PAGE>
at the meeting originally called may be transacted at any such adjourned meeting
at which a quorum is present.
Voting and Inspectors. At each stockholders' meeting, each stockholder entitled
to vote thereat shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and standing in his name on the books
of the Corporation on the record date fixed in accordance with Section 5 of
Article VI hereof (and each stockholder of record holding fractional shares, if
any, shall have proportionate voting rights). Stockholders may vote either in
person or by proxy appointed by instrument in writing subscribed by such
stockholder or his duly authorized attorney. Except as otherwise specifically
provided in the Charter or these By-Laws or as required by provisions of the
Investment Company Act of 1940, as amended from time to time, all matters shall
be decided by a vote of the majority of the votes validly cast at a meeting at
which a quorum is present. The vote upon any question shall be by ballot
whenever requested by any person entitled to vote, but, unless such a request is
made, voting may be conducted in any way approved by the meeting.
At any election of Directors, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
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<PAGE>
Stockholders Entitled to Vote. If the Board of Directors sets a record date for
the determination of stockholders entitled to notice of or to vote at any
stockholders' meeting in accordance with Section 5 of Article VI hereof, each
stockholder of the Corporation shall be entitled to vote, in person or by proxy,
each share of stock standing in his name on the books of the Corporation on such
record date. If no record date has been fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the later of the close of business on the day on which
notice of the meeting is mailed or the thirtieth day before the meeting, or, if
notice is waived by all stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held.
Validity of Proxies, Ballots. The right to vote by proxy shall exist only if the
instrument authorizing such proxy to act shall have been signed by the
stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it shall not be valid more than eleven months after its date. At
every meeting of the stockholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the Secretary of
the Corporation or the person acting as Secretary of the meeting before being
voted, who shall decide all questions touching the qualification of voters, the
validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting
in which event such inspectors of election shall decide all such questions.
Conduct of Stockholders' Meetings. The meetings of the stockholders shall be
presided over by the President, or if he is not present, by a Vice President, or
if none of them is
7
<PAGE>
present, by a Chairman to be elected at the meeting. The Secretary of the
Corporation, if present, shall act as a Secretary of such meetings, or if he is
not present, an Assistant Secretary shall so act; if neither the Secretary nor
the Assistant Secretary is present, then the meeting shall elect its Secretary.
Action without Meeting. Any action to be taken by stockholders may be taken
without a meeting if (1) all stockholders entitled to vote on the matter consent
to the action in writing, (2) all stockholders entitled to notice of the meeting
but not entitled to vote at it sign a written waiver of any right to dissent and
(3) said consents and waivers are filled with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at the
meeting.
ARTICLE III
BOARD OF DIRECTORS
Powers. Except as otherwise provided by law, by the Charter or by these By-Laws,
the business and affairs of the Corporation shall be managed under the direction
of, and all the powers of the Corporation shall be exercised by or under
authority of, its Board of Directors.
Number and Term. The Board of Directors shall consist of not fewer than three,
nor more than twenty-seven Directors, as specified by resolution of the majority
of the entire Board of Directors, provided that at least 40% of the entire Board
of Directors shall be persons who are not interested persons of the Corporation
as defined in the Investment Company Act of 1940.
8
<PAGE>
Directors Elected by Common Stockholders. The Directors elected by
common stockholders shall be divided into three classes, as
nearly equal in number as possible, and shall be designated as
Class I, Class II, and Class III Directors, respectively. The
Class I Directors to be originally elected for a term expiring at
the annual meeting held in 1989 for the 1988 fiscal year. The
Class II Directors to be originally elected for a term expiring
at the annual meeting held in 1990 for the 1989 fiscal year. The
Class III Directors to be originally elected for a term expiring
at the annual meeting held in 1991 for the 1990 fiscal year.
After expiration of the terms of office specified for such
Directors, the Directors of each class shall serve for terms of
three (3) years, or, when filling a vacancy, for the unexpired
portion of such term and until their successors are elected and
have qualified.
Directors Elected by Preferred Stockholders. At any meeting of
stockholders of the Corporation at which Directors are to be
elected, the holders of preferred stock of all series, voting
separately as a single class, shall be entitled to elect two
members of the Board of Directors, and the holders of common
stock, voting separately as a single class, shall be entitled to
elect the balance of the members of the Board of Directors.
If at any time dividends on any outstanding preferred stock
of any series shall be unpaid in an amount equal to two full
years'
9
<PAGE>
dividends, the number of Directors constituting the Board of
Directors shall automatically be increased by the smallest number
that, together with the two Directors elected by the holders of
preferred stock pursuant to the preceding paragraph, will
constitute a majority of such increased number; and at a special
meeting of stockholders, which shall be called and held as soon
as practicable, and at all subsequent meetings at which Directors
are to be elected, the holders of preferred stock of all series
voting separately as a single class shall be entitled to elect
the smallest number of additional Directors of the Corporation
who, together with the two Directors elected by the holders of
preferred stock pursuant to the preceding paragraph, will
constitute a majority of the total number of Directors of the
Corporation so increased. The terms of office of the persons who
are Directors at the time of that election shall continue. If the
Corporation thereafter shall pay, or declare and set apart for
payment, in full all dividends payable on all outstanding shares
of preferred stock of all series for all past dividend periods,
the voting rights stated in this paragraph shall cease, and the
terms of office of all additional Directors elected by the
holders of preferred stock (but not of the Directors elected by
the holders of common stock or the two Directors regularly
elected by the holders of preferred stock) shall terminate
automatically. At all subsequent meetings of stockholders at
which Directors are to be elected, the
10
<PAGE>
holders of shares of preferred stock and of common stock shall
have the right to elect the members of the Board of Directors as
stated in the preceding paragraph, subject to the revesting of
the rights of the holders of the preferred stock as provided in
the first sentence of this paragraph in the event of any
subsequent arrearage in the payment of two full years' dividends
on the shares of preferred stock of any series.
Election. At the first annual meeting of stockholders and at each annual meeting
thereafter, Directors to be elected by common stockholders and Directors to be
elected by preferred stockholders shall be elected by vote of the holders of a
majority of the shares of each respective class of stock present in person or by
proxy and entitled to vote thereon.
Vacancies and Newly Created Directorships.
Directors Elected by Common Stockholders. Any vacancy in the office of
any Director elected by the holders of shares of common stock may
be filled solely by the remaining Directors (or Director) so
elected or, if not so filled, solely by the holders of shares of
common stock, at any meeting of stockholders held for the
election of such Directors.
Directors Elected by Preferred Stockholders. Any vacancy in the office
of any Director elected by the holders of shares of preferred
stock may be filled solely by the remaining Directors (or
Director) so elected or, if not so filled, solely by the holders
of shares of preferred stock
11
<PAGE>
of all series, voting separately as a single class, at any
meeting of stockholders held for the election of such Directors
provided, however, if preferred stock of any series is issued
and, at the time of such issuance, no existing Directors have
been elected by preferred stockholders, then a majority of the
Corporation's Directors, whether or not sufficient to constitute
a quorum, may fill such vacancy or vacancies.
Notwithstanding the foregoing, the provisions in (a) and (b) above,
are contingent upon the condition that immediately after filling
any such vacancy, at least two-thirds (2/3) of the total
Directors then holding office shall have been elected to such
office by the stockholders of the Corporation. In the event that
at any time, other than the time preceding the first annual
stockholders' meeting, less than a majority of the total
Directors of the Corporation holding office at that time were
elected by the stockholders, a meeting of the stockholders shall
be held promptly and in any event within 60 days for the purpose
of electing Directors to fill any existing vacancies in the Board
of Directors unless the Securities and Exchange Commission shall
by order extend such period.
Removal. At any meeting of stockholders duly called and at which a quorum is
present, the stockholders of any class of stock may, by the affirmative votes of
the holders of a majority of the votes entitled to be cast thereon, remove any
Director or Directors of the
12
<PAGE>
class from office, with or without cause, and may elect a successor or
successors to fill any resulting vacancies for the unexpired terms of the
removed Directors.
Place of Meeting. The Directors may hold their meetings, have one or more
offices, and keep the books of the Corporation, outside the State of Maryland,
and within or without the United States of America, at any office or offices of
the Corporation or at any other place as they may from time to time by
resolution determine, or in the case of meetings, as they may from time to time
by resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Annual and Regular Meetings. The annual meeting of the Board of Directors for
choosing officers and transacting other proper business shall be held
immediately after the annual stockholders' meeting at the place of such meeting
or at such other time and place as the Board may determine. The Board of
Directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place as the Board of Directors may determine.
Notice of such annual and regular meetings need not be in writing, provided that
notice of any change in the time or place of such meetings shall be communicated
promptly to each Director not present at the meeting at which such change was
made in the manner provided in Section 8 of this Article III for notice of
special meetings. Members of the Board of Directors or any committee designated
thereby may participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
13
<PAGE>
Special Meetings. Special meetings of the Board of Directors may be held at any
time or place and for any purpose when called by the President, the Secretary or
two or more of the Directors. Notice of special meetings, stating the time and
place, shall be communicated to each Director personally by telephone or
transmitted to him by telegraph, telefax, telex, cable or wireless at least one
day before the meeting.
Waiver of Notice. No notice of any meeting of the Board of Directors or a
committee of the Board need be given to any Director who is present at the
meeting or who waives notice of such meeting in writing (which waiver shall be
filed with the records of such meeting), either before or after the time of the
meeting.
Quorum and Voting. At all meetings of the Board of Directors, the presence of a
majority of the number of Directors then in office shall constitute a quorum for
the transaction of business provided. In the absence of a quorum, a majority of
the Directors present may adjourn the meeting, from time to time, until a quorum
shall be present. The action of a majority of the Directors present at a meeting
at which a quorum is present shall be the action of the Board of Directors,
unless the concurrence of a greater proportion is required for such action by
1aw, by the Charter or by these By-Laws.
Action Without a Meeting. Any action required or permitted to be taken at any
meeting of the Board of Directors or of all committee thereof be taken without a
meeting if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
14
<PAGE>
Compensation of Directors. Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
determined by resolution of the Board of Directors.
ARTICLE IV
COMMITTEES
Organization. By resolution adopted by the Board of Directors, the Board may
designate one or more committees, including an Executive Committee, composed of
two or more Directors. The Chairmen of such committees shall be elected by the
Board of Directors. The Board of Directors shall have the power at any time to
change the members of such committees and to fill vacancies in the committees.
The Board may delegate to these committees any of its powers, except the power
to authorize the issuance of stock (other than as provided in the next
sentence), declare a dividend or distribution, on stock, recommend to
stockholders any action requiring stockholder approval, amend these By-Laws, or
approve any merger or share exchange which does not require stockholder
approval. If the Board of Directors has given general authorization for the
issuance of stock, a committee of the Board, in accordance with a general
formula or method specified by the Board by resolution or by adoption of a stock
option or other plan, may fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board of Directors.
Proceedings and Quorum. In the absence of an appropriate resolution of the Board
of Directors, each committee, consistent with law, may adopt such rules and
regulations
15
<PAGE>
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the event any member of any committee is absent from any
meeting, the members thereof present at the meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
ARTICLE V
OFFICERS
General. The officers of the Corporation shall be a President (who shall be a
Director), a Secretary and a Treasurer, and may include one or more Vice
Presidents, Assistant Secretaries or Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 8 of
this Article.
Election, Tenure and Qualifications. The officers of the Corporation, except
those appointed as provided in Section 8 of this Article V, shall be elected by
the Board of Directors at its first meeting or such meetings as shall be held
prior to its first annual meeting, and thereafter annually at its annual
meeting. If any officers are not chosen at any annual meeting, such officers may
be chosen at any subsequent regular or special meeting of the Board. Except as
otherwise provided in this Article V, each officer chosen by the Board of
Directors shall hold office until the next annual meeting of the Board of
Directors and until his successor shall have been elected and qualified. Any
person may hold one or more offices of the Corporation except the offices of
President and Vice President.
Removal and Resignation. Whenever in the judgment of the Board of Directors the
best interest of the Corporation will be served thereby, any officer may be
removed from office
16
<PAGE>
by the vote of a majority of the members of the Board of Directors given at a
regular meeting or any special meeting called for such purpose. Any officer may
resign his office at any time by delivering a written resignation to the Board
of Directors, the President, the Secretary, or any Assistant Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
President. The President shall be the chief executive officer of the Corporation
and he shall preside at all stockholders' meetings. Subject to the supervision
of the Board of Directors, he shall have general charge of the business, affairs
and property of the Corporation and general supervision over its officers,
employees and agents. Except as the Board of Directors may otherwise order, he
may sign in the name and on behalf of the Corporation all deeds, bonds,
contracts, or agreements. He shall exercise such other powers and perform such
other duties as from time to time may be assigned to him by the Board of
Directors.
Vice President. The Board of Directors may from time to time elect one or more
Vice Presidents who shall have such powers and perform such duties as from time
to time may be assigned to them by the Board of Directors or the President. At
the request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Treasurer and Assistant Treasurers. The Treasurer shall be the principal
financial and accounting officer of the Corporation and shall have general
charge of the finances and
17
<PAGE>
books of account of the Corporation. Except as otherwise provided that the Board
of Directors, he shall have general supervision of the funds and property of the
Corporation and of the performance by the Custodian of its duties with respect
thereto. He shall render to the Board of Directors, whenever directed by the
Board, an account of the financial condition of the Corporation and of all his
transactions as Treasurer; and as soon as possible after the close of each
fiscal year he shall make and submit to the Board of Directors a like report for
such fiscal year. He shall perform all acts incidental to the Office of
Treasurer, subject to the control of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, he may perform all the duties of the Treasurer.
Secretary and Assistant Secretaries. The Secretary shall attend to the giving
and serving of all notices of the Corporation and shall record all proceedings
of the meetings of the stockholders and Directors in books to be kept for that
purpose. He shall keep in safe custody the seal of the Corporation, and shall
have charge of the records of the Corporation, including the stock books and
such other books and papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be kept, all of
which shall at all reasonable times be open to inspection by any Director. He
shall perform such other duties as appertain to his office or as may be required
by the Board of Directors.
18
<PAGE>
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Subordinate Officers. The Board of Directors from time to time may appoint such
other officers or agents as it may deem advisable, each of whom shall have such
title, hold office for such period, have such authority and perform such duties
as the Board of Directors may determine. The Board of Directors from time to
time may delegate to one or more officers or agents the power to appoint any
such subordinate officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
Remuneration. The salaries or other compensation of the officers of the
Corporation shall be fixed from time to time by resolution of the Board of
Directors; except that the Board of Directors may by resolution delegate to any
person or group of persons the power to fix the salaries or other compensation
of any subordinate officers or agents appointed in accordance with the
provisions of Section 8 of this Article V.
Surety Bonds. The Board of Directors may require any officer or agent of the
Corporation to execute a bond (including, without limitation, any bond required
by the Investment Company Act of 1940, as amended, and the rules and regulations
of the Securities and Exchange Commission) to the Corporation in such sum and
with such surety or sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his duties to the Corporation,
including responsibility for negligence and for the accounting of any of the
Corporation's property, funds or securities that may come into his hands.
19
<PAGE>
ARTICLE VI
CAPITAL STOCK
Certificates of Stock. The interest of each stockholder of the Corporation shall
be evidenced by certificates for shares of stock in such form as the Board of
Directors may from time to time prescribe. No certificate shall be valid unless
it is signed by the President or a Vice President and countersigned by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the Corporation and sealed with its seal, or bears the facsimile signatures
of such officers and a facsimile of such seal.
Transfer of Shares. Shares of the Corporation shall be transferable on the books
of the Corporation by the holder thereof in person or by his duly authorized
attorney or legal representative upon surrender and cancellation of a
certificate or certificates for the same number of shares of the same class,
duly endorsed or accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the Corporation or its
agents may reasonably require. The shares of stock of the Corporation may be
freely transferred, and the Board of Directors may, from time to time, adopt
rules and regulations with reference to the method of transfer of the shares of
stock of the Corporation.
Stock Ledgers. The stock ledgers of the Corporation, containing the names and
addresses of the stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Corporation or, if
the Corporation employs a transfer agent, at the offices of the transfer agent
of the Corporation.
20
<PAGE>
Transfer Agents and Registrars. The Board of Directors may from time to time
appoint or remove transfer agents and/or registrars of transfers of shares of
stock of the Corporation, and it may appoint the same person as both transfer
agent and registrar. Upon any such appointment being made all certificates
representing shares of capital stock thereafter issued shall be countersigned by
one of such transfer agents or by one of such registrars of transfers or by both
and shall not be valid unless so countersigned. If the same person shall be both
transfer agent and registrar, only one countersignature by such person shall be
required.
Fixing of Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any stockholders' meeting or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or to receive payment
of any dividend or other distribution or to be allotted any other rights, or for
the purpose of any other lawful action, provided that (1) such record date shall
not exceed 90 days preceding the date on which the particular action requiring
such determination will be taken; (2) the transfer books shall remain open
regardless of the fixing of a record date; (3) in the case of a meeting of
stockholders, the record date shall be at least 10 days before the date of the
meeting; and (4) in the event a dividend or other distribution is declared, the
record date for shareholders entitled to a dividend or distribution shall be at
least 10 days after the date on which the dividend is declared (declaration
date).
Lost, Stolen or Destroyed Certificates. Before issuing a new certificate for
stock of the Corporation alleged to have been lost, stolen or destroyed, the
Board of Directors or any
21
<PAGE>
officer authorized by the Board may, in its discretion, require the owner of the
lost, stolen or destroyed certificate (or his legal representative) to give the
Corporation a bond or other indemnity, in such form and in such amount as the
Board or any such officer may direct and with such surety or sureties as may be
satisfactory to the Board or any such officer, sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT
Fiscal Year. The fiscal year of the Corporation shall, unless otherwise ordered
by the Board of Directors, be twelve calendar months ending on the 31st day of
October.
Accountant. The Corporation shall employ an independent public accountant or
firm of independent public accountants as its Accountants to examine the
accounts of the Corporation and to sign and certify financial statements filed
by the Corporation. The employment of the Accountant shall be conditioned upon
the right of the Corporation to terminate the employment forthwith without any
penalty by vote of a majority of the outstanding voting securities at any
stockholders' meeting called for that purpose.
ARTICLE VIII
CUSTODY OF SECURITIES
Employment of a Custodian. The Corporation shall place and at all times maintain
in the custody of a Custodian (including any sub-custodian for the Custodian)
all funds securities and similar investments owned by the Corporation. The
Custodian (and any sub-
22
<PAGE>
custodian) shall be a bank or trust company of good standing having a capital,
surplus and undivided profits aggregating not less than fifty million dollars
($50,000,000) or such other financial institution as shall be permitted by rule
or order of the United States Securities and Exchange Commission. The Custodian
shall be appointed from time to time by the Board of Directors, which shall fix
its remuneration.
Termination of Custodian Agreement. Upon termination of the agreement for
services with the Custodian or inability of the Custodian to continue to serve,
the Board of Directors shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a Custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
of the Corporation, the Custodian shall deliver and pay over all property of the
Corporation held by it as specified in such vote.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) the Investment Company Act of
1940, as amended, and (b) other employees and agents to such extent as shall be
authorized by the Board of Directors and be permitted by law. The
23
<PAGE>
foregoing rights of indemnification shall not be exclusive of any other rights
to which those seeking indemnification may be entitled. The Board of Directors
may take such action as is necessary to carry out these indemnification
provisions and is expressly empowered to adopt, approve and amend from time to
time such resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law.
ARTICLE X
AMENDMENTS
General. Except as provided in the next succeeding sentence, all By-Laws of the
Corporation, whether adopted by the Board of Directors or the stockholders,
shall be subject to amendment, alteration or repeal, and new By-Laws may be made
by the affirmative vote of a majority of either: (a) the holders of record of
the outstanding shares of stock of the Corporation entitled to vote, at any
annual or special meeting, the notice or waiver of notice of which shall have
specified or summarized the proposed amendment, alteration, repeal or new
By-Law; or (b) the Directors, at any regular or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law. The provisions of Article III,
Section 2 of the By-Laws shall be subject to amendment, alterations or repeal by
the affirmative vote of either: (i) the holders of record of 75% of each class
of the outstanding shares of stock of the Corporation entitled to vote, at any
annual or special meeting, the notice or waiver of notice of which shall have
specified or summarized the proposed amendment, alteration or repeal; or (ii)
75% of the Directors, at any regular or
24
<PAGE>
special meeting the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration or repeal.
25
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<SHARES-COMMON-PRIOR> 194,559,756
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (11,749,838)
<ACCUMULATED-NET-GAINS> (263,328,915)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 118,467,560
<NET-ASSETS> 1,517,721,007
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 93,036,191
<OTHER-INCOME> 0
<EXPENSES-NET> 11,400,045
<NET-INVESTMENT-INCOME> 81,636,146
<REALIZED-GAINS-CURRENT> (37,015,836)
<APPREC-INCREASE-CURRENT> (163,234,999)
<NET-CHANGE-FROM-OPS> (118,614,689)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (86,689,766)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (205,304,455)
<ACCUMULATED-NII-PRIOR> 796,639
<ACCUMULATED-GAINS-PRIOR> (112,143,317)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,849,801
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,400,045
<AVERAGE-NET-ASSETS> 1,590,108,000
<PER-SHARE-NAV-BEGIN> 8.85
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> (1.03)
<PER-SHARE-DIVIDEND> (0.45)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.79
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ David L. Elsum Director August 1, 1998
David L. Elsum
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ John Sheehy Director August 7, 1998
John Sheehy
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Neville Miles Director August 3, 1998
Neville Miles
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Anthony Aaronson Director August 1, 1998
Anthony Aaronson
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Laurence S. Freedman Director August 5, 1998
Laurence S. Freedman
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ David Manor Director August 5, 1998
David Manor
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Roden Cutler Director August 5, 1998
Roden Cutler
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Brian M. Sherman President August 5, 1998
Brian M. Sherman
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Malcolm Fraser Director August 4, 1998
Malcolm Fraser
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Michael R. Horsburgh Director August 3, 1998
Michael R. Horsburgh
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Harry A. Jacobs, Jr. Director August 3, 1998
Harry A. Jacobs, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Howard A. Knight Director August 3, 1998
Howard A. Knight
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Roger C. Maddock Director August 3, 1998
Roger C. Maddock
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ William J. Potter Director August 1, 1998
William J. Potter
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Peter D. Sacks Director August 4, 1998
Peter D. Sacks
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey, Carmen
Guzman-Lowrey, Gregory S. Konzal and A. Tyson Arnedt and each of them, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such attorney-in-fact in such attorney-in-fact's name, place
and stead, to sign any and all registration statements applicable to The First
Australia Prime Income Fund, Inc. (the "Fund"), and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person in his
capacity as a Director or Officer of the Fund, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
\s\ Marvin Yontef Director August 3, 1998
Marvin Yontef
THE FIRST AUSTRALIA PRIME INCOME FUND, INC.
I, Margaret A. Bancroft, the duly authorized Assistant Secretary of The
First Australia Prime Income Fund, Inc., a Maryland corporation (the "Fund"),
hereby certify that:
1. the Board of Directors of the Fund at a telephonic meeting held on
July 30, 1998, adopted the following resolution:
RESOLVED, that each of the proper officers of the Fund now or hereafter
elected or Margaret A. Bancroft, Allan S. Mostoff, Jennifer A. Olvey,
Carmen Guzman-Lowrey, A. Tyson Arnedt or Gregory S. Konzal, who are
hereby appointed as their attorneys-in-fact, with powers of
substitution, be, and each of them hereby is, authorized in the name
and on behalf of the Fund to execute a Registration Statement on Form
N-2 under the Securities Act of 1933 and the Investment Act of 1940, to
cover the offer and sale of the Common Stock pursuant to the Rights
Offering, to execute any amendments thereto in such form as may be
approved by counsel, to file or authorize the filing of such documents
with the Securities and Exchange Commission, and to designate agents
for service of process, and the execution and filing of such documents
by such officers or attorneys-in-fact or the doing by them of any act
in connection with the foregoing matters shall conclusively establish
their authority therefore from the Fund and the approval and
ratification by the Fund of the documents so executed and the action so
taken.
By: /s/ Margaret A. Bancroft
------------------------
Margaret A. Bancroft
Assistant Secretary
